Exclusive - Spain's Puig to buy 35 percent stake in Brazil's Granado, sources say

© Reuters. Exclusive - Spain's Puig to buy 35 percent stake in Brazil's Granado, sources say

By Guillermo Parra-Bernal and Tatiana Bautzer

SAO PAULO (Reuters) - Spanish fashion and fragrance firm Puig SA agreed on Tuesday to pay around 500 million reais (119 million pounds) for a 35 percent stake in Grupo Granado SA, a Brazilian manufacturer and retailer of high-end beauty care goods seeking to expand globally, three people with direct knowledge of the deal said.

Under terms of the deal, part of the proceeds will go to the owners of Granado and the rest to the company in the form of a capital increase, said two of the people, who asked not to be identified since the transaction remains private. The deal values Grupo Granado at around 1.42 billion reais, they said.

Reuters reported on July 14 that Barcelona-based Puig, the owner of the Carolina Herrera and Jean Paul Gaultier brands, was in advanced talks to buy a stake in Granado. Puig consistently stood out over a number of private-equity firms and strategic rivals that had showed early interest in Granado.

Efforts to reach investor relations staff at Rio de Janeiro-based Granado outside business hours were unsuccessful. Calls made to Puig's headquarters went unanswered.

The Granado stake could help Puig grow in Brazil, a country of 200 million that ranks as the world's No. 3 cosmetics and beauty care market. A third-generation family-owned business, Puig manages licenses such as Prada and Valentino and markets celebrity fragrances in more than 150 countries.

Founded in 1870 by Portuguese pharmacist José Antônio Coxito Granado, Grupo Granado has managed to weather the impact of Brazil's harshest recession in eight decades by targeting sales of the company's glycerin soaps, shave balms, creams, nail polish and body powders to an affluent clientele.

Former banker Christopher Freeman, who bought Granado from Coxito Granado's children in 1994, has found in Puig a partner to help bolster an overseas push that began three years ago with the opening of a small shop in Paris. Freeman began to look out for a minority partner around February, the people said, adding that talks with Puig formally started in June.

FATHER AND DAUGHTER

Granado, which had revenue of 380 million reais last year, has achieved compounded average growth of 20 percent over the past decade.

Freeman and Grupo Granado hired the investment-banking units of Itaú Unibanco Holding SA and Grupo BTG (LON:BTG) Pactual SA as advisors, Reuters reported in July. BNP Paribas (PA:BNPP) SA advised Puig, one of the people said on Tuesday.

Rio de Janeiro-based Eskenasi Pernidji Advogados and São Paulo-based Stocche, Forbes, Padis, Filizzola, Clapis Advogados also acted as legal advisors in the transaction, the same person added.

A former Citigroup Inc (NYSE:C) investment banker, Freeman and his daughter Sissi have spent the past decade honing Grupo Granado's business focus and retro image, represented by vintage logo designs and old-styled store decoration mimicking early 20th century pharmacies.

Granado's three divisions run a web of 47 stores across Brazil, a distribution network and a plant where the company's flagship products are manufactured. Granado's most recognized products include Phebo, Brazil's first luxury perfumery and glycerin soap brand, which Freeman bought in 2004.

On its part, Puig's presence in emerging markets has grown, helping the company decouple from years of weak growth in Spain. Currently, 47 percent of revenues come from emerging market countries outside of the European Union and North America.

Last year, Puig had net income of 126 million euros ($141 million) on revenue of 1.645 billion euros. Puig expects annual revenue to reach 2 billion euros by the end of next year.