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Coty, Del deal closes

BY Antoinette Alexander

NEW YORK —Industry consolidation continues, as Coty has acquired Del Laboratories, a move that adds Del’s flagship Sally Hansen beauty brand and an OTC pharmaceutical business to Coty’s portfolio.

Under the terms of the agreement, all operations of DLI Holding, the parent company of Del Labs, will merge into Coty. Financial terms of the deal were not disclosed. The transaction closed on Dec. 31, as planned.

Executives at both Coty and Del Labs have not disclosed such details as what management changes, if any, are on the horizon or how Coty will leverage the OTC business, which includes the flagship OTC pharmaceutical brand Orajel.

What Coty has stated is that the deal further enhances Coty Beauty’s fragrance, color and skin care portfolio through the addition of the Sally Hansen, N.Y.C. New York Color, La Cross, Orajel and Dermarest brands. It also brings Coty, which generates annual net sales of $3.3 billion, one step closer to its goal of becoming a $5 billion beauty company. For the year ended Dec. 31, 2006, Del Labs posted sales of $425.9 million.

“We view the acquisition of DLI Holding Corp. as a natural extension of our strategy to offer a unique portfolio of brands that produce some of the strongest consumer franchises around the world,” stated Bernd Beetz, chief executive officer of Coty. “Del’s established, well-regarded portfolio of quality products mesh well with our core offerings, and their strong presence in North America complements Coty Beauty and Coty’s international strengths.”

The Coty Beauty brand portfolio includes, but is not limited to, fragrances Celine Dion, David and Victoria Beckham, Shania Twain and Stetson, and cosmetics brand Rimmel.

Indeed, the deal enables Coty to extend its portfolio offering, which makes well over half of its sales (68 percent) in fragrance. Prior to the deal, color cosmetics accounted for 15 percent of Coty’s sales, while toiletries stood at 14 percent and skin care/sun care at 3 percent.

Del’s cosmetics business accounted for approximately 80 percent of its 2006 net sales, which is focused on nail color, nail treatment, bleaches and hair removal products, depilatories, beauty implements and value cosmetics. Meanwhile, its OTC pharmaceutical business accounted for approximately 20 percent of its 2006 net sales. That segment is focused on oral analgesics, children’s toothpaste and sore throat relief and specialty OTC products.

Del’s products are available in more than 60,000 retail locations domestically. Internationally, it has experienced growth from its direct operations in Canada, the United Kingdom, Puerto Rico and Mexico, as well as through distributors, licensees and joint venture relationships in approximately 60 countries.

Uniondale, N.Y.-based Del was acquired by Kelso & Co., a New York-based private-equity firm, in early 2005 for $465 million, including debt.

Kelso also was considering an initial public offering of stock for Del and in August filed an IPO in an effort to raise up to $200 million. However, according to a Wall Street Journal report citing sources familiar with the deal, the company opted for a sale because of strong acquisition interest. In the regulatory filing in August, Del stated that it would “evaluate and selectively pursue acquisitions or license agreements” that make strategic sense.

Del also expressed an interest in expanding its international footprint, noting that international sales have grown 22 percent since the beginning of 2005 and accounted for about 17 percent of its net sales in 2006. Coty has stated that more than half (55 percent) of its sales are generated in Europe, followed by the Americas at 33 percent, Asia at 6 percent and “other” at 6 percent.

“As our exceptional management team has guided Del through a sustained period of organic growth, cost reduction, supply chain enhancement and international expansion, we sought an ownership structure that would enable us to continue to build upon the organization’s many growth opportunities,” stated Charles Hinkaty, president and CEO of Del Laboratories, in a statement announcing the deal.

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S&P revises outlook on Rite Aid

BY Michael Johnsen

NEW YORK Standard & Poor’s Ratings Services revised its outlook on chain drug retailer Rite Aid to negative from stable, the firm reported Friday. At the same time, S&P affirmed the ‘B’ corporate credit rating on Rite Aid.

“The outlook change reflects the company’s weak same-store sales and our expectation that this trend will continue over the next few quarters,” stated Standard & Poor’s credit analyst Diane Shand. Rite Aid faces a more cautious consumer, strong growth of lower-priced generics and intense competition, she said. In addition, the current environment could make it more challenging for the company to integrate its recently-acquired Brooks/Eckerd stores.

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Boston Mayor decries in-store health clinics

BY Antoinette Alexander

BOSTON On the heels of the Massachusetts Public Health Council approving regulations allowing for in-store health clinics in the state, Boston Mayor Thomas Menino is reportedly looking to ban the clinics from opening in the city.

The decision by the health council “jeopardizes patient safety,” Menino said in a written statement, according to a Boston Globe report. “Limited service medical clinics run by merchants in for-profit corporations will seriously compromise quality of care and hygiene. Allowing retailers to make money off of sick people is wrong.”

The newspaper also reported that, in a separate letter, the mayor urged members of the city’s Public Health Commission to consider banning the clinics from opening within Boston. CVS has plans to open 20 to 30 MinuteClinics in the Greater Boston area but it is unclear how many of those would be within the city’s limits.

Defending its decision to allow clinics to operate, the state Public Health Council issued a statement that read: “The members of the Public Health Council were deliberative and thoughtful in their review of the limited service clinic regulation. We believe these types of clinics, operated either as part of a retail operation or in a nonprofit setting, can provide the public access to safe, convenient, and quality care for minor health issues.”

Officials at MinuteClinic were not immediately available for comment.

On Jan. 9, the state Public Health Council approved rules for limited service medical clinics. The new regulations took effect immediately.

“This is a new model for health care delivery that can benefit many people in the Commonwealth. These regulations will improve consumer convenience and make it easier for non-profit organizations to establish satellite clinics in a variety of settings to serve vulnerable populations,” stated secretary of Health and Human Services JudyAnn Bigby in a statement issued after the approval.

Added John Auerbach, commissioner of the Department of Public Health and chair of the PHC, “Properly regulated, these types of clinics will serve an important function, making care for minor medical care more convenient. The council was mindful of not wanting to create a stand-alone system of health care, so these regulations require coordination and linkages to primary care providers.”

The approval came at the end of a long review process that included two public hearings and the submission of hundreds of pages of testimony regarding the regulations, including testimony in favor of the clinics from the Convenient Care Association.

“We appreciate the Public Health Council’s careful deliberation regarding the adopted regulations that will now guide the operation of limited services clinics in Massachusetts. These retail-based clinics are providing consumers in 35 other states with easy access to high-quality, affordable health care in the face of a nationwide primary care physician shortage. Since this growing shortage is well documented in Massachusetts, and its related health care access issues have been exacerbated by the state’s near-universal healthcare coverage, we appreciate the Council embracing limited services clinics as a partial solution to these serious problems,” said Web Golinkin, president of the CCA and chief executive officer of in-store clinic operator RediClinic, in a statement issued after the council’s decision.

Sparking the move to create specialized regulations for these clinics was CVS’ application to open a MinuteClinic in one of its stores in Weymouth. According to the council, early in the application review process it became clear that DPH regulations governing medical clinics did not address the operation of medical clinics with limited scope of services. Rather than consider applications requiring numerous waivers from full-service clinic regulations, the department decided to create a specialized set of rules.

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