Alberto-Culver Tangles With Regis

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This could be an investment banker's dream come true. Alberto-Culver (NYSE: ACV), operator of Sally Beauty stores and a maker of various beauty and personal care products, is merging with Regis (NYSE: RGS), an operator of hair salons.

Sort of.

Here's how it will happen: Alberto-Culver will spin out Sally Beauty to its shareholders. That spun-out company will then merge with Regis, and while the combined entity will be known as "Regis" and should continue to trade under the same ticker, Alberto-Culver shareholders will initially own about 54.5% of the combined "new Regis."

But wait, there's more.

Sally Beauty will take on $400 million in debt and hand that over to Alberto-Culver, which will then take $280 million of that and pay a $3 one-time special dividend to shareholders. After that, the new Alberto-Culver will cut its dividend from $0.46 to $0.16, and the new Regis will increase its dividend to $0.36 (from the current $0.16).

When all is said and done, Alberto-Culver will be much smaller (Sally Beauty accounts for about two-thirds of Alberto-Culver's $3.5 billion in revenue) and will be focused on branded consumer products like Alberto VO5 and St. Ives. The new Regis will see its sales double to about $4.5 billion, and it will operate roughly 11,000 beauty/hair-care salons and the 3,200 Sally Beauty and Beauty Systems stores. No other company will even approach Regis' scale in the personal-care retail service arena.

In plainer English, this will create a focused service and retail-oriented hair-care and beauty business, and a much smaller (but perhaps more focused) personal-care products company. All in all, I'd call it a win-win for both sides, though today's market action certainly tabs Regis shareholders as the bigger winners.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).