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J&J acquires China rival after months of speculation

By Michelle Yeomans , 05-Feb-2013

The Chinese arm of the cosmetics giant has finally completed the acquisition of local personal care rival Shanghai Elsker to consolidate its position in the baby care sector in China.

According to news publication ‘The China Daily’, despite already claiming half of the country’s market with its baby care product range, industry analysts reckon the acquisition will enable the company to fend off potential competition that is eating into its market share.

Commenting on the acquisition, managing director of the China consumer unit, Edward Zhou said that from J&J’s side, the transaction “is an important strategic decision that has been made based on our continued confidence and long-term commitment to the market as well as to Chinese consumers.”

Although the personal care giant hasn’t disclosed the amount it paid for its’ rival, Zhou says J&J is "determined to make the (Elsker) brand even bigger a success" by further developing the brand so that it complements its’ own baby care range.

Analysts have estimated that the price tag for the business will be approximately $100m, a figure that was the result of months of negotiations between the two companies.

Elsker has annual revenues of between $30m - $40m a year, which would suggest that the estimated price tag is on the high side, but one that should eventually pay off if the company wants to maintain a competitive edge in the market.

A grip on the baby care market

According to market researcher Euromonitor, the market in China for baby care products has ballooned in recent years, so much so that the sector rose to 2.03 billion yuan by the end of 2011, and is predicted to reach 4.71 billion yuan by 2016.

Although the market is fresh for pickings, The China Daily reckons J&J's position is being threatened as its market share of child-specific products dropped from 59.1 percent in 2007 to 49.2 percent in 2011, the consultancy said.  

The company's biggest decline is in the baby-related skin care segment, which witnessed a drop of 11 percentage points in the previous five years to 50 percent in 2011,” it reported.

Could an investigation into chemicals in J&J products have affected its dominance?

Back in 2009, health authorities in China tested the J&J range following allegations that they contained carcinogenic chemicals.

The move by the Chinese watchdog was in response to a report published by US group the Campaign for Safe Cosmetics, which stated that J&J’s products were amongst many baby personal care items to contain traces of 1,4 dioxane and formaldehyde.

Although there was no official ban at the time, local media reported one of the country’s major supermarkets (Nonggongshang) as removing the products from its shelves.

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