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LVMH buys stake in South Korea's Clio Cosmetics

SEOUL -- LVMH Moët Hennessy Louis Vuitton SE is buying a minority stake in South Korean cosmetics maker Clio Cosmetics Co., marking the second major investment in a week by a big-name Western investor in South Korea's booming makeup industry.

The $50 million deal for about 7% of Clio values the cosmetics maker at about $700 million, according to a person familiar with the matter, and makes L Capital Asia, the private-equity investment arm through which LVMH is investing, the second-biggest shareholder in Clio behind the company's founder, Han Hyun-oak.

Bernard Arnault, LVMH's longtime chairman and chief executive and France's wealthiest man, is also investing as part of the deal, through his family holding company Groupe Arnault.

The deal, announced here on Friday, positions Seoul-based Clio for an initial public offering that could come as soon as November. LVMH's approach of Clio was reported by The Wall Street Journal earlier this week.

The investment signals continued optimism in South Korea's soft power, which has made the country's pop music, television programs, fashion and cosmetics popular across Asia, particularly in mainland China.

On Monday, Goldman Sachs Group Inc. and Bain Capital Private Equity said they would acquire a controlling stake in Carver Korea Co., a closely held maker of specialty cosmetics, in a deal that would value that company at about $675 million.

And in recent years, South Korea's pop culture industry, known collectively as K-pop, has emerged as a lucrative business. One hit Korean drama, "Descendants of the Sun," caused such a sensation in China when it was aired earlier this year that it helped send shares in the Chinese film and television company that invested in the military-themed romantic series up 20% in a week.

South Korea's largest cosmetics company, Amorepacific Corp. , which has built its business on selling to Chinese consumers, has quadrupled its stock price since the beginning of 2014, and is now one of the country's biggest companies by market capitalization, valued at about $21 billion.

Even so, many Korean cosmetics companies have yet to crack the code with consumers outside Asia.

"The global beauty market is showing growing interest in Korean concepts and innovations, but there are still challenges in [the] international market," Ildiko Szalai, London-based senior research analyst for beauty and personal care at Euromonitor International, wrote in a report last month.

Clio is a case in point. It sells its products through retail chains like Sephora and in its own branded Club Clio stores, with about 55% of the company's sales coming from South Korea, 35% from China and 10% from the rest of the world.

That geographic balance could shift with the LVMH investment. In an interview, Clio founder Ms. Han, who will continue to hold a controlling stake in the company, said that LVMH will help Clio expand in the U.S. and Europe. However, she added that the focus for now was on China, where demand for Korean cosmetics is soaring.

Louis Vuitton "has a long history in managing distribution channels in China, and I think we can become much stronger based on their support," she said.

Ms. Han said the investment discussions began about a year ago with an approach by LVMH, which saw an opportunity to benefit from South Korean cool. For its part, Clio wanted to be able to tap LVMH's expertise in retail distribution channels, store management and global marketing.

"We were a bit worried about self-expansion through just our own knowledge and experience, because the global market is different," Ms. Han said.

With LVMH on board, Ms. Han's next task is an IPO, which she says could come as soon as November, though the regulatory process could lengthen that timeline.

"Next year, we have many investment plans, so an IPO can help us to realize our plans," she said.

For LVMH, the bet on Clio is its second major deal in South Korea, following its purchase of a stake in YG Entertainment Inc. , a purveyor of Korean pop music, in 2014. Through that investment, LVMH became the second-largest shareholder in YG, which manages rapper Psy, boy band Big Bang and girl group 2NE1.


 
 

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