Alberto-Culver makes moves to spin off salon hair care business

But despite the magnitude of the deal, the investment world responded negatively to the announcement, with credit ratings agency Standard and Poor's downgrading its rating to a negative watch.

This has not deterred the investors themselves though. Share prices increased by over $1 to reach $47.80, following Friday's announcement. Share prices have sinced leveled off, closing yesterday at $47.42.

Standard & Poor's credit analyst Robert Lichtenstein pointed out that the company's business portfolio now looked more vulnerable as the deal would reduce the company's earnings base and business diversity.

Alberto-Culver announced that as part of the deal private equity company Clayton, Dublier & Rice would invest $575 in the Sally Beauty unit, to secure a 47.5 per cent stake, while shareholders would be assured a one-time $25 per share dividend, as well as one Sally Beauty Co share for each Alberto-Culver share already held.

The deal follows a failed acquisition bid by Regis Corp. That deal was struck in January of last year, but following revisions to Alberto-Culver's projected earnings for the year, Regis decided to pull out of the deal back in April.

Although the fact that Regis pulled out of the deal left Alberto-Culver with more than $50m - thanks to fines for breaking the contractual agreement for the deal - the fact that Alberto-Culver's financial performance is looking uncertain and the cancellation of the Regis deal leads some industry analysts to believe that brokering another deal will not be without its challenges.

However, the fact that equity firm Clayton, Dublier and Rice has already entered the picture does offer some security to the deal, should help it seem more attractive.

Added to the fact that the hair care sector is generally a mature but reasonably stable market should help the company attract investors looking for a reasonably safe bet.

Recent initiatives at Alberto-Culver have included a policy to source raw materials from other cheaper countries, as well expanding its distribution through the opening of new retail stores.

And despite the fact that Alberto-Culver did have to slightly down grade its projection for the full year, the fact is that it is still in a strong position, with sales predicted to continue growing throughout the year.

Indeed, the company reported that sales for the fiscal 2006 first half grew by 6.6 per cent to $1.85 billion, while net earnings for the first half including non-core items increased 10.6 per cent to $109.0 million.