Lilly to Sell Elizabeth Arden Unit to Faberge

Eli Lilly & Co., following other big drug companies that have recently decided to bail out of the sluggish cosmetics business, said Wednesday it will sell its Elizabeth Arden division to Faberge Inc. for about $700 million.

The transaction, which is expected to be completed in the fall, will give New York-based Faberge--known for its line of Brut men’s cologne and Aqua Net hair spray--one of the world’s largest makers of prestige cosmetics as well as a much bigger presence in department stores, where Elizabeth Arden cosmetics are mostly sold.

Like three other major drug companies that have shed their cosmetic holdings in the past year, the Indianapolis-based firm sold Elizabeth Arden because “we believe that our resources should be focused on our core (health-care) businesses,” a Lilly spokesman explained.

Wall Street signaled its approval of the move, as Lilly’s stock closed at $94, up 37.5 cents in trading on the New York Stock Exchange on Wednesday.

Elizabeth Arden produces a line of makeup, fragrances and skin care products that largely compete in department stores against other cosmetics such as Revlon and Estee Lauder. The company, which has about 3,800 employees worldwide, also operates the Red Door beauty treatment salons and Maine Chance spa.

Privately held Faberge of New York is owned by New York business executive Meshulam Riklis, the 63-year-old husband of entertainer Pia Zadora. Faberge said it plans to operate Elizabeth Arden as a “stand-alone unit” and would maintain employment levels, pay and benefit programs.

Refocusing on Pharmaceuticals

Faberge is an international manufacturer and marketer of hair-care products, fragrances and toiletries. It has about 6,700 employees worldwide, including 208 at a manufacturing facility in Pomona.

In April, Lilly said it was planning to sell Elizabeth Arden as part of its strategy to focus on its core pharmaceutical units, which it said offered more potential for growth.

The $4.96-billion cosmetics industry is growing at a 2% annual rate, after a more robust pace in the 1960s and 1970s, according to Jack Salzman, a cosmetics analyst at Goldman, Sachs & Co. As a result, many drug companies that had diversified into cosmetics a decade ago to reduce their regulatory exposure to the Food and Drug Administration are now trying to undo those acquisitions.

“The cosmetics industry is a more mature business now and (therefore) looks less attractive” to many drug companies like Lilly, said Lynne Hyman, a cosmetics analyst at E. F. Hutton in New York.

Last November, Squibb Corp. sold its Charles of the Ritz Group Ltd. cosmetic and fragrance unit for about $630 million to Yves Saint Laurent.

American Cyanamid is selling Jacqueline Cochran Inc., and Beecham Group PLC sold its Germain Monteil Unit for about $10 million to Revlon Group Inc.

Analysts estimated that Lilly could make as much as $600 million from the sale of its Arden unit, which Lilly bought in 1971 for an undisclosed sum from Elizabeth Arden Sale Corp. Analysts said the $700 million paid for Arden was much higher than they expected.