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Shiseido to Acquire Bare Escentuals for $1.7 Billion

According to reports by The Associated Press, Shiseido Co. is seeking to purchase San Francisco-based Bare Escentuals Inc. in a $1.7 billion deal. The acquisition, announced Jan. 15, 2010, is, according to the report, Shiseido's biggest purchase since its founding in 1872 as Japan's first Western-style pharmacy.

The Tokyo-based company will offer to buy all outstanding stock of Bare Escentuals for $18.20 a share, which represents a 43% premium over its closing price on the Nasdaq Thursday. The transaction was unanimously approved by both boards of directors.

Bare Escentuals, founded in 1994, will operate as a separate division of Shiseido under current chief executive Leslie Blodgett, who is credited with taking Bare Escentuals from a small, niche player to an industry leader and innovator. Partially through Blodgett's regular appearances on the QVC shopping network and infomercials, sales grew from approximately $8 million in 1999 to $350 million in 2006 and $556 million in 2008.

"This is an exciting day for all of us at Bare Escentuals, and I couldn't be more pleased to be joining forces with the team at Shiseido," Blodgett said in a statement. "Together with Shiseido, we look forward to bringing our mineral-based beauty products to even more women worldwide."

The AP reports that, for Shiseido, the acquisition represents a major step in its bid to expand abroad amid a shrinking home market. The company is Japan's largest beauty company with operations in more than 70 countries, but global business accounted for only 38% of the company's $7.5 billion in sales last fiscal year. Its presence in the U.S. remains limited, making up 8% of total revenue.

Shiseido aims to boost overseas sales to 50% of overall revenue by 2017. After the deal, that figure will rise to 42%, the company estimates. Moreover, it says it believes in Bare Escentuals' global growth potential as increasing numbers of women turn to cosmetics with more natural ingredients.

"This acquisition further enables Shiseido to move toward our goal of becoming a global player," said Shinzo Maeda, president, Shiseido. "Shiseido's well-established Asian distribution channels can help Bare Escentuals tap lucrative markets in the region."

Blodgett, who owns 6% of Bare Escentuals, will maintain a smaller stake in the company after selling 40% of her holdings to Shiseido. Its top shareholder, Berkshire Partners LLC, has agreed to sell its 16% stake to Shiseido.

Bare Escentuals will be delisted from the Nasdaq after the acquisition.

Upon the news in Tokyo, Shiseido jumped 5.1% to 2,040 yen on the Tokyo Stock Exchange, beating the Nikkei 225 index's 0.7% rise. However, Standard & Poor's placed Shiseido's debt ratings on "CreditWatch Negative with negative implications." Shiseido will shoulder about $1.9 billion in total costs, including Bare Escentuals' debt. It said it plans to pay with 30 billion yen ($330 million) in cash and the rest in bridge loans. Standard & Poor said Shiseido's financial soundness will "substantially deteriorate" after the purchase, with debt exceeding liquidity in hand.