No Anticipated Changes for Sally Beauty Company

While the recent $2.6 billion spinoff of the company to the Regis Corporation may be making headlines, beauty professionals don’t need to worry about any major changes taking place.

Since it first opened its doors in 1964 in New Orleans, Sally Beauty’s mission has been to offer high-quality professional beauty products. And while the recent $2.6 billion spinoff of the company to the Regis Corporation may be making headlines, beauty professionals don’t need to worry about any major changes taking place.

“We do not anticipate any significant changes to Sally stores. Customers will not see any dramatic changes,” says Jack Nielsen, director of finance, investor relations, and investment benefits for Regis Corporation.

One change that may occur is the way Sally reaches out to consumers. In a recent teleconference, Paul Finkelstein, chairman and CEO of Regis, said Sally can be more aggressive in advertising and marketing, competing with other retailers for consumer product sales.

The agreement, which is expected to be completed in late spring or early summer of 2006, will combine Sally’s 2,419 Sally Beauty Stores, 822 Beauty Systems Group outlets, and 1,244-person direct sales force with Regis’ 10, 952 beauty salons, operated under brand names such as Regis and Supercuts, 90 hair restoration centers, and 35 beauty education shools.

According to Nielsen, the transaction is considered a spin-off and not a sale—the difference being that a spin-off permits a company (Alberto-Culver in this case) to spin off a portion of its assets without them being taxed at the corporate level. The IRS requirement is that shareholders of the spun-off asset must have at least 50.1% ownership of the new company that is the merger partner. “In the case of this transaction, Alberto-Culver shareholders will own 54.5% of Regis Corporation once the transaction is complete,” says Nielsen.

The spin-off made sense for Alberto-Culver, says Dan Stone, vice president of corporate communications for the company. “For Alberto-Culver, as both Sally and its consumer products business had grown, there were increasing areas of conflict. Some of the biggest vendors to Sally were companies that compete with Alberto-Culver in the consumer product arena,” says Stone. “Also, the key retail chains that sell Alberto-Culver consumer products increasingly saw Sally as a competitor.”

Alberto-Culver manufactures, distributes, and markets personal care products, including Alberto VO5, St Ives, and Nexxus in the United States and internationally.

According to Howard Bernick, president and CEO of Alberto-Culver, Finkelstein contacted him last June after the company acquired the Nexxus brand of hair care products. “We’ve been considering a separation of Beauty Systems Group and Sally since 1986. And we had been fascinated with the idea of doing something with Regis for a long time,” he stated in a recent teleconference. “Sally stores compete with traditional food and drug stores for beauty product sales. It would have taken us decades to compete with Regis, vying for the same real estate. Sally will be able to compete more aggressively with retail customers.”

In 1969, Alberto-Culver acquired Sally Beauty Company, then a handful of franchised stores in New Orleans. The company discontinued the franchises. In 1972, chairman Michael Renzulli took over management of Sally. His ability to successfully blend consumer and professional distribution has been responsible for Sally’s growth.

With Sally now under its umbrella of companies, Regis will become a vertically integrated beauty care company with projected 2007 revenue in excess of $5 billion, says Nielsen.

“The merger will allow Regis to become more aggressive in its attempt to thwart product diversion,” says Nielsen. “Every bottle of professional product sold outside the salon channel hurts salon professional.”

Following completion of the transaction, Bernick will join Regis’ board of directors as its non-executive chairman. Finkelstein will continue to serve as Regis’ CEO, and Gary Winterhalter will continue as president of Sally Beauty Company. Renzulli will enter a three-year consulting agreement with Regis.

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