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Unilever Is Overpaying for Alberto-Culver, Analyst Says

Morningstar says Unilever is overpaying for its $3.7 billion purchase of Alberto-Culver, while Goldman Sachs maintains a more positive tone on the transaction.
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(Unilever, Alberto-Culver story updated with analyst commentary)
NEW YORK (TheStreet) -- Consumer goods giant Unilever's (UL) - Get Unilever Plc Report agreement to buy Alberto-Culver (ACV) - Get AllianzGI Diversified Income & Convertible Fund Report for $3.7 billion in cash has been met with mixed reactions from the analyst community.

Goldman Sachs

analysts took a largely positive tone about the transaction, which they said, if completed, "would help to consolidate astill-fragmented hair care industry in the U.S." In a client note, Goldman Sachs analysts Andrew Sawyer and Stephanie Whited cited ACNielsen as saying that a combined Alberto-Culver and Unilever would have a dollar share of U.S. hair care of 19%, compared with


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29% and



They added that outside the U.S., Unilever's "breadth and scale" could help rev up the geographic growth of Alberto-Culver's TreSemme and Nexxus brands.

Morningstar on the other hand, conveyed a more cautionary tone about the transaction, saying that Unilever is paying a 34% premium to Morningstar's fair value estimate for Alberto Culver, and roughly 2.3 times sales and 14.8 times trailing-12-month EBITDA. "While the purchase price is unlikely to move the needle on our valuation of Unilever, we believe the firm is overpaying for growth and we're putting our fair value estimate for Unilever under review," Morningstar analyst Lauren DeSanto said in an equity research report.

De Santo said whether the deal ends up being worthwhile depends on Unilever's ability to "take Alberto's brands and slot them into the white spaces of Unilever's portfolio in new markets."

DeSanto expects the deal to go through.

Under the deal, announced on Monday, Unilever will acquire all outstanding shares of Alberto-Culver for $37.50 a share in cash, representing a premium of 33% to its 12-month volume weighted average share price and an 18% premium to its all-time high closing share price achieved earlier this year.

Carol Lavin Bernick, executive chairman of Alberto-Culver said that "...viewing the global marketplace today, we believe that for these brands to achieve their full potential, they need to be able to compete in all major global markets. Given the resources this would require, our brands' chances for success are better served by being merged into a larger organization with an even larger global footprint than Alberto-Culver's."

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Alberto-Culver generated sales of about $1.6 billion and EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) of more than $250 million for the 12-month period ending June 30.

Unilever said the acquisition makes it the world's leading company in hair conditioning, the second largest in shampoo and the third largest in styling and significantly enhances its hair care presence in the U.S. Canada, the UK, Mexico and Australasia. The company said that a decade ago personal care represented 20% of its turnover; organic growth has driven it to reach more than 30%.

Unilever said the merger is expected to deliver significant synergies and, excluding restructuring costs, will be accretive to EPS in the first full year.

Unilever ADRs have risen 0.6% to $29.02 in late morning trading Tuesday.

Meanwhile, Alberto-Culver stock has increased 0.2% to $37.72. The stock skyrocketed by 19.7% to $37.69 in midday trading the day before on news of the transaction.

-- Written by Andrea Tse in New York.

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