Loreal Acquisition Strategy

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Strategic analysis report on L’Oreal acquisition of Body Shop in 2006

CONTENTS

1. EXECUTIVE SUMMARY……..……………………………………………………3 2. STATEMENT OF PURPOSE………..………………………………………………3 3. LIMITATIONS…………………………..…………………………………………..4 4. INTRODUCTION…………………………..……………………………………….4 5. INDUSTRY BACKGROUND…………………..………………………………….4 6. COMPANY OVERVIEW…………………………..………………………………5 L’Oreal…………………………………………………..…………………………...5 Body Shop…………………………………………………..……………………….5 7. GROWTH STRATEGIES……………………………………..……………………6 Reasons for acquisition……………………………………………..………………..6 Acquisition strategy……………………………………………………..…………...7 Integration Approach………………………………………………………..……….7 Expected synergies……………………………………………………………..……8 Added Value Potentials…………………………………………………………..…9 Competitive Advantage…………………………………………………………..…10 Portfolio Management…………………………………………………………........11 8. CONCLUSIONS AND RECOMMENDATIONS……………………………..….12 9. REFERENCES……………………………………………………………………...13 10. BIBILOGRAPHY………………………………………………………………….14 11. APPENDIX………………………………………………………………………...15

EXECUTIVE SUMMARY
The following report is an analysis of the proposed acquisition of Body Shop by L’Oreal. It provides overview of the two companies and highlights L’Oreal’s growth strategies through acquisitions. It aims to identify the reasons for the acquisition, expected synergies, value added potentials and competitive advantage added to L’Oreal from Body Shop. Expected synergies from this acquisition appear to be access to new markets, access to natural products, growth in market share, access to suppliers and reduction of operating, distribution and R&D costs. This acquisition would also enable the Body Shop to get access to marketing strategies and techniques of L’Oreal. Moreover, it would provide L’Oreal with a scope to strengthen its position in global cosmetic market, which was expected to be worth more than $ 10 billion by the end of 2006. The key to success in this acquisition is the retention of core values and identity of Body Shop. Therefore, the integration of two companies concludes that there is a minimal need for strategic interdependence and a maximum need for organisational autonomy. Finally, analysis of Body Shop’s performance pre and post acquisition was performed, through a comparison of the operating profits, which point out that the acquisition was successful.

STATEMENT OF PURPOSE
* Critically evaluate the core competence of L’Oreal and Body Shop, and to analyse the probable synergies of acquisition. * What are the reasons behind this acquisition?
* What are the values and potential growth opportunities added to L’Oreal from Body Shop pre and post acquisition? * Does L’Oreal gain any competitive advantage from the Body Shop? * How well the Body Shop acquisition fits into L’Oreal’s portfolio?

LIMITATIONS
This study has some limitations which include access to primary data resources and financial resources. The data are collected through text books, journals, and electronic resources (Internet).

INTRODUCTION
On March 17, 2006, The Body Shop International, a retailer of natural-based cosmetics, announced that it agreed to be taken over by the world largest cosmetic company, L’Oreal in a cash deal worth of $1.45 billion (£652 million). L’Oreal’s offer price of $5.25 per share of Body Shop, was more than 34% of premium over the share price. L’Oreal following inorganic strategy, acquired many companies and brands, and achieved leadership position in the global cosmetic industry. This was the first time L’Oreal had planned to take over a retail chain. Some analysts expressed their concern about L’Oreal’s integration of Body Shop, while considering the challenges faced by LVMH after acquiring the Sephora in 1997. (Cosmeticsdesign.com) Inspection of Body Shop shows that it had strong ethical standards of not testing ingredients on animals, which helped the company to build the image of a...
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