In 2006, Dabao produced $5.3 million in profit on revenue of $86.7 million. It has net assets of $59 million. J&J is also in the cosmetics business, as it produces the Neutrogena line of cosmetics.
Dabao, a state-owned company, put itself up for sale earlier this year. By requiring a bank guarantee for the full purchase price, Dabao cut some potential bidders out of running. Avon (AVN), in particular, was thought to be interested, because it was recently allowed to re-introduce its direct selling business model in China, and it lacks the kind of low-price products that are Dubao’s specialty. Dabao also stipulated that bidders have a global presence and registered capital of at least $2.5 billion.
Dabao emerged in 1999, built on the restructured state-owned Beijing cosmetic factory. According to newspaper reports, 41% of Dabao’s employees are handicapped, and J&J agreed to handle their employment “appropriately,” though the exact meaning of the phrase was not specified.
Dabao has over 3,000 outlets in China, many of them in second-tier cities. The acquisition will facilitate J&J’s foray into the Chinese market, which is expected to grow. The low and medium priced products from Dabao will round out the higher priced products from Neutrogena.
Some Chinese observers worry about the disappearance of familiar brands, following an acquisition. After Proctor & Gamble (PG) took over the washing powder Panda, for example, the familiar Chinese brand’s penetration of its home market dropped from more than 10% to almost nothing, as P&G substituted western products.