Regis & Alberto Break Up

In the end, both the company behind the Supercuts chain and the makers of Alberto VO5 just couldn't see eye-to-eye on their hair-brained combination. Last night, Regis (NYSE: RGS  ) announced that Alberto-Culver (NYSE: ACV  ) was backing out of a convoluted merger that would have given Regis control over Alberto-Culver's Sally Beauty and Beauty Systems stores.

Even though the pieces seemed to fit between the various salon concepts at Regis and the health and beauty retail business at Alberto-Culver, there were reasons for Alberto-Culver's board to worry. Its investors would be inheriting a 54.5% stake in the new company, and Regis hadn't been doing so hot lately.

Just last month, Regis warned that it would only earn between $0.45 and $0.48 per share during the March quarter. When the deal was first announced, Regis was projecting profitability to come in between $0.55 to $0.60 per share. The company also warned that its June-quarter earnings would come in under last year's fiscal fourth-quarter showing.

It wasn't the first time that Regis had warned investors. In fact, it had done so three other times over the past two years. I took Regis CEO Paul Finkelstein to task over this when he described the company's problems as "near-term in nature." He had used similar terminology, describing the company's unexpected quarterly expenses to be "short-term in nature," when he talked down results last April.

If Finkelstein is right this time, maybe the split with Alberto-Culver is for the best. Regis will receive a merger termination fee, and if its fundamentals improve in fiscal 2007, the company will likely fetch a higher share price. That will make it less regrettable that the company didn't hand over more than half of its shares to Alberto-Culver investors.

Then again, the company will have to kick the habit of hosing down its beer-goggle forecasts. Tom Gardner -- who had initially recommended Regis to Motley Fool Stock Advisor newsletter subscribers two years ago -- suggested that investors sell in November of 2005, because Regis "continued its pattern of revising guidance down before issuing earnings."

Health and beauty can be a sound niche. Even though Helen of Troy (Nasdaq: HELE  ) has had a rocky few quarters, the stock has more than tripled over the past five years. So let's hope Regis doesn't sulk. Vanity can be a good thing in this case. Let Regis doll itself up all pretty-like in its next fiscal year. Because after a breakup, the best revenge is living well.

Longtime Fool contributor Rick Munarriz has gotten his hair snipped at a Supercuts in the past, and he'll do so again. He does not own shares in any of the companies in this story.The Fool has a disclosure policy. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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