By Cliff Peale
The Cincinnati Enquirer

Pet food. Hair coloring. Now beauty salons.

Procter & Gamble Co.'s last three big acquisitions have all followed a similar model: Find a business or category where consumers will pay more, where you can work with professionals who can influence consumers and where Cincinnati's P&G can apply its massive size and research and development strengths.

The model worked with pet-food giant Iams in 1999 and with hair-color icon Clairol in 2001. It's that same formula that P&G hopes will work now with its $5.7 billion deal to buy German hair-care giant Wella AG.

P&G ACQUISITIONS

Richardson-Vicks, 1985 Price: $1.16 billion Brands acquired: Oil of Olay, NyQuil Tambrands Inc., 1997 Price: $1.85 billion Brand acquired: Tampax Iams Co., 1999 Price: $2.3 billion Brands acquired: Iams, Eukanuba Clairol, 2001 Price: $4.95 billion Brands acquired: Nice `n Easy, Herbal Essences, Miss Clairol Wella, 2003 Price: $5.7 billion Brands acquired: Wella, Sebastian, Koleston hair color

ABOUT WELLA

Employment: 17,000 workers. Distribution: Wella products are sold in 150 countries. Headquarters: Darmstadt, Germany, a city about 20 miles south of Frankfort. Corporate divisions: Consumer hair products, professional hair products, and cosmetics and fragrances. Subsidiaries: Besides personal product manufacturers, they include Tondeo, a hair scissors maker based in Solingen, the center of the European blade industry, and Belvedere, a maker of salon equipment and furniture near Rockford, Ill. History: Founded in 1880 by Franz Str–her, a 26-year-old hairdresser, as a small family business to make toupees, plaits and hair pieces from real hair. In 1900 he invented a waterproof device to keep a wig securely in place. In 1904, Str–her opened his first factory in the East German town of Rothenkirchen. Innovations: Creator of the first permanent appliances, the hood dryer, as well as the first combination hair colorant and hair creme.

Wella generates almost half of its $3.5 billion in sales from professional products. And the retail products it does sell are concentrated in Europe, Asia and Latin America, outside of P&G's core market of North America and the United Kingdom.

"This acquisition has made me think a lot about the model that works in health care, beauty care and personal care," P&G chairman and chief executive A.G. Lafley told investors shortly after announcing the deal Tuesday morning. "The model that works really draws upon the professional. ... P&G will bring technology and product, and Wella will bring access to the channel."

With little overlap between the businesses and little resistance expected from regulators, the deal could close in four to six months. It will add another boost to P&G's revenue growth without hurting profits from the first full year, it said, because Wella sales are growing faster than P&G sales.

That should burnish P&G's stock price and standing among investors. Add in more than $300 million in annual cost savings from such things as purchasing and media buying by the third year, and P&G said the financials justified the 58 percent premium it is paying Wella's voting shareholders over recent share prices.

But the real impact of the deal will come in the long term, as Lafley remakes the company into a global beauty-care company, with fewer investments in businesses where consumers decide on price alone.

Instead, P&G wants a full price for its advantages in research and global scale. And with Wella's influence in beauty salons, it can use those salons as a laboratory for that research.

"The story of the last few years is that (P&G's advantages) get competed away in the retail channels," said Ann Gillin of Lehman Brothers in New York, who studies P&G and attended the presentation Tuesday morning. "Now they go to a channel that's a bit more willing to pay up for that."

It's a trend at P&G. Its Iams unit works heavily with veterinarians, and it has marketed to dentists to spread the word about Crest and Whitestrips.

The professional hair-care market is $10 billion globally and growing faster than most of P&G's hair-care categories, Lafley said. That makes it bigger than retail hair color, and comparable to toothpaste, he said.

The Wella business includes salon furniture sales and a training studio near New York City's Rockefeller Center.

P&G will leave the management of that professional business largely intact through Wella's headquarters in Darmstadt, Germany. That means there should be no impact on employment or operations in Cincinnati.

It took several months of negotiations to convince the family that controlled most of Wella's shares to sell, said Bruce Byrnes, P&G vice chairman and president of the global beauty care business. With Henkel AG buying a stake of close to 7 percent in Wella and rival Unilever rumored to be interested, there was no certainty about a deal until Monday, when it was signed at various locations in Europe, he said.

Wella's management even issued a statement indicating that it "is not a party to the agreement."

"The executive board of Wella AG respects the decision of the family shareholders, but adds that the question of a sale is beyond the executive board's sphere of influence," it said.

Byrnes said the deal is a big step in the plan to make P&G a big player in the beauty-care business, where it is chasing L'Oreal in many international markets.

"We want to be the best beauty-care company, but we want to do it in the P&G way," he said.

E-mail cpeale@enquirer.com