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SQUIBB HUMAN HEALTH CARE BUSINESS WOULD BECOME SOLE FOCUS

Executive Summary

SQUIBB HUMAN HEALTH CARE BUSINESS WOULD BECOME SOLE FOCUS of the company if Squibb accepts a proposal from Charles of the Ritz management to dispose of the cosmetics business through a leveraged buy-out or other option. Squibb has been paring away its businesses outside of human health care, starting with the 1981 sale of Life Savers to Nabisco and most recently the animal health business in 1985. Charles of the Ritz is the only non-human health care business remaining at Squibb. In a June 19 press release, Squibb said it "has received a request from the management of its fragrance and cosmetic subsidiary, Charles of the Ritz Group Ltd., to consider a number of alternatives regarding the CRG Business, namely, a leveraged buy-out by CRG management or a spin-off or public offering of the CRG stock." A private sale is another possibility, Squibb said. Goldman Scahs will act as financial advisor. Goldman Sachs' analysis of the possible disposition of Ritz "is still at a very early stage" and no decision has been made to proceed with any of the alternatives being considered," Squibb said. The Ritz cosmetics and fragrance business had sales of $432.2 mil. in 1985, representing an 8% increase over the previous year and about 20% of Squibb's $2 bil. volume last year. The subsidiary's product mix is a combination of drug and deptartment store and specialty lines ranging from Bain de Soleil and the Frever Krystle fragrance to the Yves Saint Laurent Paris scent and Beaute cosmetics. Although Squibb did not mention a price for Ritz, the recent negotiations surrounding the takeover of Revlon might indicate the going rate for cosmetics/toiletries businesses. Last year Pantry Pride was offered $905 mil. for the Revlon beauty business but rejected it as inadequate. The offer was nine times 1984 worldwide operating profit. Because Revlon's beauty business had improved as of the third quarter 1985, the $905 mil. was probably closer to six or seven times earnings that year. Charles of the Ritz is headed by Chairman Martin Schmidt and President/CEO Robert Miller. Schmidt has been with Squibb and Ritz for approximately 20 years, the last three as chairman. Miller joined Ritz in 1972 and also moved to his current position in early 1983. Despite the fact that Squibb has owned Charles of the Ritz since 1971, Miller has been an advocate for preserving an entreprenurial spirit within the subsidiary. For example, at a Fragrance Foundation meeting last fall, he stressed the need for cosmetics companies to maintain an autonomy and entreprenurial freedom when owned by a large corporation.
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