Alberto Culver's Sally Spinoff: Neither Company's Attractive

The Alberto Culver (ACV)/Sally Beauty Holdings (SBH) transaction is finalizing after close tomorrow, 11/16/06. I took a good look at both, and neither looks especially attractive.

A special dividend of $25/share is being paid to current holders of Alberto Culver. This is being financed by a private placement of 47.5% of Sally Beauty Holdings stock and the $1.85 billion in debt which is being piled onto SBH.

ACV is presently selling for $50. In terms of the pieces, you've got a $25 dividend, $7.18 in SBH stock, and $18 in "new" ABV stock.

ACV will have a book of around $7.50, and had earnings of $0.75 based on 2005 numbers. So you've got a ROE of around 10%... OK, but not great... and a pro forma multiple of 24 times earnings. No thanks.

SBH will have $1.85 billion in debt, and a market cap of about $1.28 billion, with a big shareholders deficit due to the new debt. Operating income is around $224 million. So although the co could delever and push earnings much higher, it'll likely take a while unless they dump some assets. I didn't look deep enough to figure out whether that is possible or likely.

SBH looks more attractive than ABV, but neither stand out to me as great opportunities.