Valeant's Asset Sale To L'Oreal Explained

According to Gadfly's Andrea Felsted, the $1.3 billion price tag on the deal is worth it for the France-based consumer goods empire.

Felsted continued that while makeup products have seen a tremendous surge in demand as of late, dubbed by some the "selfie generation," demand for skincare products that solve problems have been quietly rising behind the scenes.

It Just Makes Sense

As such, L'Oreal's acquisition is expected to bolster one of its fastest-growing segments, active cosmetics. Specifically, the new additions to L'Oreal's portfolio will boost the company's presence in the United States.

L'Oreal is expecting the three brands to help double the revenue of its cosmetics division. In fact, organic sales for L'Oreal in North America has been rising at a faster rate than Western Europe, it makes sense for the company to bolster its line up.

Felsted also pointed out another reason for L'Oreal to justify its acquisition: If it doesn't, then its rivals may. For example, Unilever plc (ADR) UL has been active in acquiring premium personal care lines, while Nestle SA (ADR) NSRGY has been investing in its own health science business, which includes a skin health segment.

Finally, L'Oreal can easily afford to buy Valeant's segments given its 96 billion euro market capitalization and 3 billion annual free cash flow.