Colgate to Buy Majority Stake in Tom's of Maine
CHICAGO Tom's of Maine, a big player in the small but growing natural personal products category, has agreed to be swallowed up by Colgate-Palmolive Co., the world's largest maker of toothpaste.
In a deal unveiled Tuesday, Colgate said it would buy an 84 percent stake in privately held Tom's of Maine -- best known for its toothpaste -- for $100 million, subject to adjustment at closing.
Tom's of Maine has stronger gross profit margins than Colgate, making it an attractive prize. Colgate has narrowed its focus to highly profitable businesses such as oral care and personal care. However, with annual sales estimated at about $50 million, Tom's of Maine will be just a small addition to Colgate, which had $11.4 billion in sales in 2005.
Colgate expects to close the deal during the second quarter and said the acquisition should be neutral to profit in 2006 and increasingly positive after that.
Tom's of Maine was founded in 1970 by Tom and Kate Chappell with a $5,000 loan from a friend. Colgate said Tom Chappell will continue to run the company from its Kennebunk, Maine office. The Chappell family will retain a 16 percent stake. Colgate will have an opportunity to increase its holdings in the future.
According to Colgate, the U.S. market for natural oral and personal care products is valued at $3 billion and is growing 15 percent per year. Tom's of Maine is the No. 1 oral care brand in the natural category.
Tom's of Maine, which has nearly 200 employees, also makes mouthwash, floss, soap, deodorant and shaving cream. Its products do not contain artificial sweeteners, preservatives, colors, flavors or animal ingredients, and are tested without the use of animals.
Deutsche Bank analyst William Schmitz, who rates Colgate "hold," estimated that Tom's of Maine has annual sales of $40 million to $50 million. He said the deal was "not cheap" based on that estimate, with Colgate paying 2.4 times to 3 times sales.
Shares of New York-based Colgate were up 61 cents, or 1.1 percent, to $57.61 on the New York Stock Exchange.
The deal is the latest example of a mainstream corporation buying a niche company with strong social and environmental principles. In 2000, Unilever bought ice cream maker Ben & Jerry's. That company operates as an autonomous subsidiary of Unilever, and its philanthropic contributions and other community activities remain a major part of its culture, just as they were when it was a separate company.
"AN EXCELLENT FIT"
Tom and Kate Chappell said in a statement that they chose to partner with Colgate "because they have the global expertise to help take Tom's of Maine to the next level." They called Colgate "an excellent fit with our own cultural values."
Tom's of Maine's donates 10 percent of its profit to charitable organizations and encourages its employees to use 5 percent of their paid time for volunteer work.
The deal marks Colgate's first oral care acquisition since June 2004, when it bought privately-held Swiss company GABA Holding AG for $841 million, including $112 million of net cash.
Colgate President and Chief Operating Officer Ian Cook said in a statement that Tom's of Maine has gross profit margins which are 10 percentage points higher than Colgate's margin, making it "a logical acquisition as we continue to prioritize our global oral and personal care categories."
Colgate previously unveiled a target to reach gross profit margin of 60 percent by 2010. Its margin was 56 percent in the 2005 fourth quarter, excluding restructuring charges.
The latest acquisition comes as Colgate considers buying Pfizer Inc.'s Listerine brand. Cook said last week that Listerine could fit very well in Colgate's oral care product lineup, and that it would look at other parts of Pfizer's business up for sale but would not overpay.
Pfizer said in February that it may spin off or sell its consumer products business. In early March it said it had no interest in breaking up the brands, which also include Rolaids antacid and Sudafed cold pills.