CORRECT: Shiseido To Buy Bare Escentuals For $1.7 Billion In US Growth Drive

Shiseido Co. (3861.TO) is set to acquire U.S. make-up company Bare Escentuals Inc. (BARE) for $1.7 billion, marking the largest acquisition in the 83-year history of Japan's biggest cosmetic maker.

The move underlines Shiseido's push to gain a presence in the U.S. market, where it has been a smaller, niche player until now. It also highlights the fact that, faced with lackluster demand at home due to a shrinking population, Japanese companies are aggressively seeking out global acquisition targets in order to expand their businesses.

Under terms of the agreed offer, Shiseido plans to purchase all outstanding shares of Bare Escentuals common stock for Y18.20 apiece--a 43% premium to its closing price on the Nasdaq in New York on Thursday. Shiseido plans to finance the deal through a combination of its own cash holdings and a bridge-loan from banks.

The acquisition would catapult Shiseido to become the fourth-biggest cosmetics company in the world by sales, from number six where it is now, putting it just behind L'Oreal SA (OR.FR), Procter & Gable Co. (PG) and Unilever PLC (UL).

The deal was announced Friday morning in Tokyo, shortly after the Japanese stock market opened, and Shiseido's shares jumped 5% on the news. At the 0200 GMT close of morning trading, Shiseido shares were up 4% at Y2,020. "As the company is struggling to increase profits in Japan while customers tighten their purse strings, this may help expand its overseas business opportunities," a fund manager said, speaking on condition of anonymity.

The U.S. was the most targeted nation by Japanese companies last year, as the dollar weakened against the yen to a 14-year low, hiking Japanese companies' purchasing power. Japanese companies spent $5.89 billion on 82 deals in the U.S. last year, according to data provider Dealogic.

"Our business in the States had been the weakest, and we needed a bit more presence in America," said a Shiseido spokesman. "Asia is still the most important market to us, but we wanted more of a boost in the U.S."

Shiseido, which approached Bare Escentuals, has been talking to the U.S. company about the deal since last August, a spokesman said. Shiseido has been aggressively expanding in Asia, where it is now the third-biggest brand in the crucial Chinese market. But its presence in the US has been small: in fiscal 2009, only 21% of the company's global sales were generated from the U.S., compared with 45% from Asia and 34% from Europe.

Based in San Francisco, Bare Escentuals is widely credited with beginning the trend of "mineral" makeup - loose powder that looks like a more natural solution than traditional cake powders and foundations. Its founder and chief executive, Leslie Blodgett, has become a cult icon among beauty insiders.

Bare Escentuals gained particular traction with young American women concerned with their complexion and willing to pay top dollar to improve it. The company has a 67% market share in the mineral foundation market, according to data compiled by Shiseido.

Bare Escentuals went public just three years ago in 2006 in the midst of a period of fast growth for the specialty cosmetics company.

In the first half of 2006, just before the company had its initial public offering, it saw its sales grow by more than 60%. More recently the company has felt the pressure of a weaker consumer environment in the U.S. as consumers have cut back on discretionary purchases like pricier cosmetics. The high end cosmetics maker for the most part sells through nontraditional outlets like its own boutiques, on home shopping channel QVC and in specialty stores like Sephora and Ulta.

Eric Wong, the company's vice president for investor relations, said Bare Escentuals had agreed to the deal because it had been looking to grow internationally. At the moment, the company gets about 85% to 90% of its sales from the U.S., with the rest in Western Europe and Japan.

"Expanding internationally had always been a goal," he said. In Japan, for instance, the company has only a limited presence through a home shopping network and infomercials. But the acquisition could open up opportunities for it to grow through other channels like department stores in Japan, he said.

The deal will also give Bare Escentuals broader global exposure.

"We also hope to sell mineral foundations in Asia, using our channels," a spokesman said.

BofA Merrill Lynch is acting as exclusive financial adviser to Shiseido. Goldman Sachs & Co is acting as exclusive financial adviser to Bare Escentuals.

-By Mariko Sanchanta, and Anjali Cordeiro of the Wall Street Journal, and Ayai Tomisawa of Dow Jones Newswires; 813-6269 2793; [e-mail]