Rumored deal would further boost US firm's dominating market share

The multibillion-dollar baby-care market has been rife with rumors in recent weeks that the US consumer-product vendor Johnson & Johnson has made a bid for Shanghai-based Elsker for about $100 million.

Such a transaction, if it were to go through, would provide Johnson & Johnson, which has an extensive sales network in China, an even more dominating share of the ballooning baby-care market, with annual sales estimated to reach 2 billion yuan ($310 million) by the end of 2015.

Established in 2006 and with a strong Danish connection, Elsker posted annual sales of 400 million yuan for 2011, up 73 percent from a year before, according to earlier Chinese media reports. On its official website, the company said its products, including shampoo, body lotion and cream, are marketed in most Chinese provinces.

Johnson & Johnson, which entered the Chinese market in the early 1980s, has been expanding rapidly in recent years. It acquired Beijing Dabao Cosmetics Co Ltd in July 2008 for an estimated 2.3 billion yuan. Dabao SOD Milk Cream once had more than 15 percent of the skin-oil market share in China.

A Johnson & Johnson spokesman declined to comment on the latest acquisition rumors, referring instead to a statement that said the company's goal has always been "to provide the Chinese consumer, including parents and their babies in China, with safe, gentle, mild personal-care products that they can trust and use with confidence".

Elsker is widely considered by industry insiders as one of the most progressive baby-care product manufacturers in China.

According to the company's website, it has spent about 10 million euros ($12.31 million) to establish a production base that meets the Council of Europe's Guidelines on Good Manufacturing Practice of Cosmetic Products, reaching a sales receivable of about 300 million yuan, a number substantial enough to make it as competitive as Johnson & Johnson.

The baby-care industry in China has been expanding rapidly. According to the studies by Euromonitor International, a London-based consumer market research firm, the retail value of baby and child-specific hair care reached 511 million yuan in 2011, up about 16.8 percent year-on-year. The retail value of baby and child-specific skin care rose to 2.03 billion yuan by the end of 2011, up about 17.35 percent year-on-year. This number is predicted to reach 4.71 billion yuan by 2016.

Johnson & Johnson has always been taking the lead in terms of the market shares of hair, skin- and sun-care products in China, according to Euromonitor. It accounts for more than 50 percent of the market share in the three categories.

Runners-up include Henkel AG & Co KGaA of Germany, Amway Corp of the United States and Pigeon Corp of Japan. Shuangfei Daily Chemicals Co Ltd from Fujian province is one of the few Chinese companies able to compete with the overseas giants.

The wave of overseas leading companies that seek to take over Chinese homegrown companies started in late 2003 when the French cosmetics and beauty company L'Oreal Group bought the Shenzhen-based Mininurse skin-care brand.

The Paris-based perfume maker Coty Inc acquired the Chinese skin-care company TJoy Holdings Ltd in December 2010 for $400 million. Coincidentally, Liu Xiaokun, founder of Shanghai Elsker, is a former sales director of TJoy.

But Ge Wenyao, chairman of Shanghai Jahwa, the largest Chinese manufacturer of cosmetics and healthcare products, sees the overseas tycoons slowing down their pace of acquiring Chinese homegrown brands, as the economies of the European and American countries continue to struggle.

"The threshold of the Chinese daily-chemical industry is set quite low. Quite a number of these domestic companies cannot get themselves accustomed to the corporate culture of the overseas buyer. That's why I consider most of the acquisitions in this industry unsuccessful so far," Ge said.

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