Colgate-Palmolive Co. said Tuesday it would buy a majority interest in Tom’s of Maine, a maker of natural products including toothpaste, soap and deodorant, as it focuses on highly profitable oral and personal care businesses.
Colgate said it would buy an 84 percent stake in privately held Tom’s of Maine for $100 million, subject to adjustment at closing. It expects to close the deal during the second quarter and said it should be neutral to profit in 2006 and increasingly positive after that.
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 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. The Chappell family will retain a 16 percent stake. Colgate will have an opportunity to increase its holdings in the future.
Tom’s of Maine will remain based in Kennebunk, Maine. The company, which has nearly 200 employees, also makes mouthwash, floss 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.
Colgate President and Chief Operating Officer Ian Cook said in a statement, “With gross profit margins a full 10 percentage points higher than Colgate’s margin, Tom’s of Maine is 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.
'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.
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.
