Press Release

■ LG H&H purchased a 90 percent stake in THEFACESHOP at the actual acquisition price of 350 billion won ($302 million).

■ LG H&H made timely inroads into the low-end cosmetics market that is expected to further grow along with the phenomenon of trading up and down among consumers.

LG Household & Health Care (LG H&H), the second largest cosmetics maker in Korea, announced today that it worked out a deal to acquire THEFACESHOP, the nation’s third largest cosmetics company.

LG H&H is to take over a 90 percent stake in THEFACESHOP: 70.2 percent from Shepherd Detachering B.V., the biggest shareholder, and 19.8 percent from the 29.8 percent owned by Jung Woon-Ho, the founder and president of THEFACESHOP.

The actual acquisition price that LG H&H should pay amounts to 350 billion won ($302 million) in total: 278.5 billion won ($240.3 million) to Shepherd and 71.5 billion won ($61.7 million) to Jung.

This acquisition is set to enable LG H&H to gain a foothold in the lower-price market, which has seen relative growth due to consumers’ habit of trading up and down, the company said.

With the acquisition, LG H&H now has the capability to offer a full spectrum of brands catering to all age groups from teenagers to those in their fifties, and to streamline THEFACESHOP’s R&D, production, and distribution operations that used to be outsourced to third parties. The company expects this change will generate synergy.

Moreover, LG H&H said its outstanding R&D capabilities combined with THEFACESHOP’s brand value would lead to dramatically enhanced product quality, thereby promoting consumer loyalty. The company also added that it would develop value-added functional products which would help increase its profit margin.

Background of Acquisition and Future Market Trend

LG H&H has boasted the highest growth in the high-end cosmetic market as it has long been dedicated to premiumization. LG H&H decided to take over the low-end brand THEFACESHOP in a bid to enter into the lower-price market by using its strong presence in the premium segment.

The acquisition of THEFACESHOP, which has annually raked in 250 billion won ($215.7 million) in sales with an operating margin of 19 percent, has brought Korea’s second-biggest cosmetics maker on par with the front runner in the domestic cosmetics industry in terms of sales and profit.

Post-acquisition Benefits

The deal provides LG H&H with a unique opportunity to broaden its consumer base to include those in their late teens and early twenties, an age group that the company has so far failed to target, and secure a comprehensive brand portfolio that meets the needs of all age groups from teens to seniors.

LG H&H is likely to see a significant improvement in its management efficiency resulting from the reorganization of THEFACESHOP’s R&D, production and distribution lines and the integration of back office functions.

The company also expects similar gains from its overseas businesses as its operations in China, Vietnam and the United States will be integrated with the acquired company’s fledgling overseas business.

In addition, the company is expected to benefit enormously from the combination of its business capabilities in the beauty industry with THEFACESHOP’s franchising know-how.