Cosmax CEO says he has rejected two takeover offers, wants to stay independent

AmorePacific Holdings

01/08/2018 02:52

* Cosmax CEO says received takeover offers from two
conglomerates
    * He says has no plans to sell company given growth
prospects
    * Company could build cosmetics factory in North Korea-CEO
    * Cosmax CEO says sales to grow 38 pct to 1.8 trln won this
year
    * Cosmax shares rise 7 percent on Wednesday

 (Adds Cosmax share reaction, comments from S.Korean companies
with cosmetics business)
    By Hyunjoo Jin
    PANGYO, South Korea, Aug 1 (Reuters) - South Korea's Cosmax
Inc  192820.KS , the world's biggest cosmetics manufacturer,
rejected buyout offers from two large local conglomerates in the
past year and has no interest in selling as it expects continued
revenue growth propelled by Asian demand, its chairman and chief
executive told Reuters.
    The company's North Korean-born founder, Lee Kyung-soo, also
said North Korea's cosmetics market has great potential for
growth and he would like to build a cosmetics factory there
should South Korea and the United States guarantee business
activity in the isolated state.
    As global cosmetics brands snap up South Korea's small but
fast-growing cosmetics firms at hefty premiums, Cosmax and other
contract manufacturers, which make products for the brands, are
also attracting takeover interest, Lee said. 
    "I can easily sell the company if I want to," 72-year-old
Lee said in his office just south of Seoul on Monday, in his
first interview with international media since founding the
company in 1992.
    "Because cosmetics brands often undergo sales fluctuations,
some buyers think it's safer to invest in manufacturers."
    After Lee's comments, shares of Cosmax jumped 7 percent in
morning trade on Wednesday, and its holding company Cosmax BTI
 044820.KS  climbed 4.3 percent as of 0045 GMT, outperforming
other cosmetics shares and a 0.6 percent rise in the wider
market  .KS11 .
    L'Oréal  OREP.PA  acquired South Korea's beauty and fashion
firm Nanda Co earlier this year, joining Unilever  ULVR.L , 
Estee Lauder  EL.N  and other global companies in buying or
investing in small South Korean cosmetics firms that are popular
among Chinese millennials.  urn:newsml:reuters.com:*:nL4N1U54RJ
    Contract manufacturers such as Cosmax have propelled the
success of those smaller brands in South Korea, China and
elsewhere, by radically shortening the time it takes to turn an
idea into a new product on a store shelf.  urn:newsml:reuters.com:*:nL4N1TY0MZ
    Cosmax, which counts China's top skincare brand Pechoin and
France's L'Oréal among its biggest customers, caters to a number
of other customers ranging from the higher-end, such as Estee
Lauder and Chanel, to South Korean brands like Nanda's 3CE and
LVMH-backed Clio  237880.KQ .
    "If giant global companies want to launch products in a
speedy manner, and do not want to miss out on the Chinese
market, they have no choice but to turn to outside
manufacturers, or buy companies which make such products," Lee
said.
    Lee declined to say if foreign investors have approached
Cosmax about a takeover, but said in the past year, two of South
Korea's large conglomerates offered to buy the company, which
has a market value of more than 1.4 trillion won ($1.25
billion).
    Lee declined to name the suitors, but added that
Amorepacific Group  002790.KS , South Korea's largest cosmetics
powerhouse and also a Cosmax customer, is not one of them.
    Several South Korean conglomerates own cosmetics brands or 
retailers.
    LG Group owns LG Household & Healthcare Ltd  051900.KS ,
which rank second behind Amorepacific in cosmetics sales, while
retail giants CJ  001040.KS , Lotte  004990.KS  and Shinsegae
 004170.KS  have cosmetics retail chains.
    An LG spokesman said the company bought a small
manufacturer, Zenisce, in 2015, but declined to comment further.
A spokesman for CJ said it is not interested in buying cosmetics
manufacturers, while Lotte and Shinsegae declined to comment. 
        
    REVENUE GROWTH SURGING
    A former drugs sales man, Lee holds a 28 percent stake in
Cosmax BTI  044820.KS , the holding company of Cosmax Inc. He
said he wanted to grow the company further and eventually hand
it over to his two sons, who each hold less than 3 percent
stakes in the holding company.
    Cosmax' revenue increased 18 percent last year, the slowest
growth for the company since 2007, the last year when data is
available. It has consistently achieved annual growth of more
than 20 percent over the past decade before a diplomatic row
between Seoul and Beijing reduced Chinese demand for South
Korean cosmetics in 2017.
    Lee said he expects the company to return to blockbuster
growth in the current fiscal year ending in December, with
revenue seen rising 38 percent to 1.8 trillion won.
    But shorter working hours introduced in South Korea this
month, which put a legal cap on working hours at 52 hours per
week from the previous 68, threatens to increase Cosmax' labour
costs as it now may have to hire more workers, he said.
    Lee, who was born in North Korea in 1946 and fled to the
South at the age of 5 during the 1950-1953 Korean War, says he
wants to eventually tap into North Korea's domestic cosmetic
market, along with its skilled, low-paid workers, provided the
conditions for investment are good.
    In 2015, North Korean leader Kim Jong Un visited a cosmetics
factory with his wife Ri Sol Ju, calling for improved quality of
domestic cosmetics so that they can compete with "foreign
brands," the North's state media KCNA reported.   
    “North Korean women are known to be beautiful. It would be
really great if they use cheap, but quality cosmetics and become
more beautiful, and more confident," Lee said.    
    ($1 = 1,116.6500 won)

 (Reporting by Hyunjoo Jin
Editing by Soyoung Kim and Martin Howell)
 ((hyunjoo.jin@thomsonreuters.com; 82-2-3704-5685; Reuters
Messaging: hyunjoo.jin.thomsonreuters.com@reuters.net))