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SMITHKLINE BEECHAM SELLING 32 OTC/H&BAs AND YARDLEY/LENTHERIC

Executive Summary

SMITHKLINE BEECHAM SELLING 32 OTC/H&BAs AND YARDLEY/LENTHERIC for a total of $234 mil., in separate deals announced April 10 and 12, respectively. SmithKline Beecham is divesting for $52 mil. in cash 32 OTC and toiletry brands to a group of investors led by Warburg, Pincus and including former SmithKline Beckman Consumer Products execs Lawrence White, Greg Kearl and Walter Witoshkin, and investment banker Peter Carr. The U.K.-based Yardley/Lentheric cosmetics business is being sold for $182 mil. to a group financed by Wasserstein Perella that includes senior management. Yardley/Lentheric is SmithKline Beecham's first sale of a cosmetics concern since the firm announced one year ago its intention to spin off its cosmetics and other non-core businesses to lower debt, which currently stands at roughly $2.7 bil. The firm said it originally had intended to sell the cosmetics operations as a whole but is now divesting in a piecemeal fashion. The prices offered for the two businesses are only slightly higher than their respective 1989 revenues and, in the case of the cosmetics deal, is about 11 times operating income. Revenues for the 32 OTCs and H&BAs were $30 mil. in 1989. Yardley/Lentheric revenues totaled $175 mil. and operating income for 1989 was $17 mil. The low acquisition price exemplifies the softening market for cosmetics. For example, Schering-Plough's Maybelline, which took in $252 mil. in 1989, is being sold to a Playtex-led buying group for $300 mil. This trend could spell disappointing outcomes for other pharmaceutical companies trying to sell off noncore units, like American Cyanamid, which has put Shulton on the selling block. The OTCs and H&BAs (referred to by SmithKline Beecham as "small consumer brands") being disposed of include the OTC brands A.R.M. allergy relief medicine; the Asthmahaler and Asmanefrin bronchodilators; Avail calcium supplement; Congestac decongestant; Hold cough suppressant; Femiron iron supplement, Liquiprin childrens' analgesic and Zonite douche. H&BA brands being sold to the management group include Aqua Care moisturizer, Pretty Feet and Hands rough skin remover, Rosemilk skin care lotion, Lady Esther face cream and Kreml hair tonic. The deal is expected to take effect May 29. At Yardley/Lentheric, Wasserstein Perella will have an 88.5% equity position and senior management will own 1.5% with an option to buy an additional 4.5% stake from the investment firm. Dealmaker Wasserstein Perella played a key role in the 1989 SmithKline/Beecham merger. The remaining 10% equity will be controlled by SmithKline Beecham. The buyout vehicle for the deal, a U.S. company called Old Bond Street Corporation, will pay SmithKline Beecham $116 mil. in cash, "which includes repayment by Yardley/Lentheric of intercompany debt and payments of dividents and tax," in addition to $66 mil. in "subordinated loan notes for a U.K. subsidiary of Old Bond Street, redeemable in 1998." Yardley/Lentheric represents around 30% of SmithKline Beecham's $605 mil. cosmetics franchise. The company maintained that the sale "should not be the basis for forward speculation" on the price tag for the remaining cosmetics businesses, which sell different products to varied markets. Astor/Lancaster, which is "the major part of" SmithKline Beecham's cosmetics business, as well as Yardley/Lentheric operations in South Africa, are being sold separately. Revenues from the cosmetics operations comprise "less than 10%" of consolidated sales.
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