Consumer goods are gliding along at a good clip despite the larger global economic malaise and have been enjoying some notable overseas success. New York-based Colgate-Palmolive
The company has expanded its oral care, personal care, and pet nutrition businesses at home and in faster-growing emerging markets. Colgate is now strengthening its focus on its profitable oral care and personal care businesses and is buying Unilever's
Colgate is paying $940 million for the business, which operates primarily in Western Europe. Meanwhile, the company has also agreed to sell its Colombian detergent business to Unilever for $215 million. Sanex has a strong presence and positioning in its markets.
But is the deal worth it for Colgate? While Colgate is looking to capitalize on Sanex's brand value, it's not clear how much of an impact the deal will make over the long term.
What are the benefits?
Last year, Sanex was acquired by Unilever as part of a larger purchase from Sara Lee
The new unit had just $260 million in sales last year, compared to Colgate's total sales of $15.6 billion. Colgate saw total sales rise 1.5% to $15.6 billion in 2010 from the year before.
Now the Foolish question is how efficiently will Colgate be able to generate returns from this transaction? Rising commodity costs are likely to put further pressure on the company's margins, and Colgate needs to play the pricing game strategically. Major economies in Western Europe and the U.S. are still struggling to come out of the economic downturn.
Of course, Colgate needs to continue fending off the challenges that competitors such as Clorox
The Foolish outlook seems to be covered by the clouds of commodity inflation and stagnant incomes that force consumers to shift their purchasing patterns. Adding fuel to the fire, rising austerity-related concerns in Europe can pose further risks for the company. Nevertheless, it's Foolish to continue watching the company's operations and developments abroad. Meanwhile, let's keep our fingers crossed, hoping for faster economic revival in the developed markets and greater success in the emerging ones.
Anupama Pattanaik doesn't hold shares of any of the companies mentioned in this article. Johnson & Johnson is a Motley Fool Inside Value selection. Unilever is a Motley Fool Global Gains pick. Clorox, Johnson & Johnson, Procter & Gamble, and Unilever are Motley Fool Income Investor selections. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson. The Fool owns shares of Johnson & Johnson. Motley Fool Alpha LLC owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.