Here's an old story released by CBS somewhat verifying ALU's intent to spinoff Fragrancecounter. We will just have to wait and see if we get an official verification from ALU.
EZ
By Darren Chervitz, CBS MarketWatch
Last Update: 5:14 PM ET Oct 23, 1998
MENLO PARK, Calif. (CBS.MW) -- CBS.MarketWatch.com has
learned that personal products distributor Allou Health & Beauty is close
to securing between $15 million and $30 million in private financing to spin
off its online retailing operations into a separate company.
The financing for the new company, to be called The Fragrance Counter
Inc., is being handled by New York investment bank Hambro America
Securities. Allou (ALU) Chief Financial Officer David Shamilzadeh said
financing should be completed at the end of the year and that a public
offering for The Fragrance Counter will likely be attempted sometime in
1999.
Although final terms will need to be negotiated,
current Allou shareholders will likely own about 30
percent of the company while new investors and
Allou management will hold the rest.
"We've been marketing the deal for the last month
or so, and we've talked to many venture capital
firms and private equity funds," said Joe Mark,
president of Hambro America, a New York
investment bank specializing in new media. "The
interest has been dramatic ... and we expect to
circle a lead investor within a month."
Beauty smells like a beast
Allou's online operations have been both a blessing and a curse for the
distributor, which went public in 1989. In April, the company announced
a series of distribution deals with Internet portal players like America
Online, Yahoo and Excite and the stock took off to never-before-seen
levels. During the week following these deals, more Allou shares
exchanged hands than during the entire nine years the company had been
public, Allou CFO Shamilzadeh said. On Friday, shares of Allou ended
trading up 3/8 to 5 11/16, well below the high of 16 reached in April.
But Allou investors interested in the long-term
performance of the stock were worried about how
expenses associated with the Web sites would
affect Allou's bottom line. They saw the stock's
meteoric rise as an opportunity to cash-in. In
response, two the company's large investors,
Kenneth Dart and Heartland Advisors, dumped
shares to lower the stock price.
On Friday, however, an SEC filing showed that
Dart has been buying back shares in Allou since
late August. According to the filing, Dart has
bought 76,600 shares at prices ranging from 4 1/4
to 5.
"Investors in [Allou] now don't know exactly what's
going on," said Mark, noting Barnes & Noble as
another company trying to reconcile its traditional
and online operations. "Allou needs to clearly
define what business it's in."
Shamilzadeh agreed the spin-off will be a boost for the company's ailing
stock. "It will benefit Allou's valuation immediately and investors interested
in the company as a long-term investment will once again revisit Allou," he
said. The company is trading at a price to earnings multiple significantly
less than other distributors.
The Net's drag
Expenses related to Allou's Internet operations chopped off about 9 cents
a share for the most recent quarter. The Internet operations, which include
the Fragrance Counter and Cosmetics Counter Web sites, are expected
to generate about $9.5 million in sales for fiscal 1999 and $20 million in
the following year, Shamilzadeh said. He hopes well-connected new
investors will help increase that growth by adding "experience, expertise,
and most importantly, a rolodex."
Allou still generates most of its revenue from selling health and beauty-aid
products to mass-market retail outlets like Wal-Mart and drug stores on
the East Coast. Allou has a market capitalization of about $37 million and
a price-to-trailing earnings multiple of about 8, with sales of about $301
million in its 1998 fiscal year ending in March. In the most recent quarter,
the company had sales of $68.6 million and a profit of 11 cents a share,
compared to year-ago sales of $64.9 million and a 17-cent profit.
Nose-to-nose competition
The Fragrance Counter competes with other fragrance-related Web sites,
including Deer Park, N.Y.-based FragranceNet. Jason Apfel, the chief
operating officer at FragranceNet.com, said his site is "neck and neck"
with the Fragrance Counter in terms of sales.
Apfel said his site offers discounts on all products, while Fragrance
Counter sells its goods at the full retail price, aside from a limited number
of daily specials. "It's the venue. People on the Internet, granted they're
looking for convenience, but they're also looking for value," said Apfel.
Apfel also disagreed with The Fragrance Counter's strategy of spending
so much money to get its site featured on high-traffic Internet sites. For
instance, Apfel pointed out that Allou is spending $750,000 a quarter on
AOL, while its entire Internet business only generated sales of $313,000
for the first fiscal quarter. "Word-of-mouth has been our biggest
advertising source," he said. FragranceNet.com had been on AOL until
The Fragrance Counter took its place.
Mark argued that most of Allou's sales will likely come in the fourth
quarter. "For fragrance companies, Christmas business typically
represents as much as 50 percent of your business," said Mark, adding
that the company's seasonal cycle will decrease somewhat next year as it
ramps up its cosmetic sales. |
