LG buys up Korean cosmetics player The Face Shop

Rumors of the sale started to circulate last week causing share prices in the company to rise and the deal has now officially been announced.

LG H&H will pay 420bn won ($363.1m) for a 90 percent stake of the country’s third largest cosmetic company.

Initially, it will take on 70.2 percent stake currently held by Shepherd Detachering BV and approximately two thirds of The Face Shop chairman Woon-Ho Jung’s stake which currently stands at 30 percent.

While he retains his remaining 10 percent stake Woon-Ho Jung’s will remain a shareholder in the company; however, this final part is set to be taken on by LG H&H in two years time.

Increasing stake in mass market sector​

The acquisition is an attempt by LG H&H to increase its stake in the mass market sector where it is currently under represented.

The recent economic downturn has caused many to trade down into the mass market segment which LG H&H says it had ‘no presence in’.

“Acquiring The Face Shop is a strategic response to persistent growth in the low end cosmetics market due to bi-polarization of consumption,”​ the company said in a statement.

In addition, the company predicts it will be head to head with the number one player in the Korean cosmetics market in terms of sales and operating profit, after the acquisition.

Synergies will increase profitability​

The Face Shop currently boasts annual sales of approximately 250bn won and a 19 percent operating profit margin and 700 independent stores.

Furthermore LG H&H claims it will be able to make a number of synergies following the purchase, including purchasing, human resources and finances.

In addition, a potential deal for which discussions are currently underway involving a collaboration with European cosmetics and fragrance retailer Douglas would greatly increase the company’s access to international markets, particularly the US and Europe.