Embattled hair salon giant Regis Corp. said Monday that it would sell its Hair Club for Men and Women to a Japanese wig maker for $163.5 million.
The buyer of Hair Club, which provides medical treatments for hair loss, is Tokyo-based Aderans Co. Ltd. -- a firm that pioneered "cyberhair" artificial hair in the 1990s.
Edina-based Regis is shedding non-core assets to concentrate on its domestic salon business, which includes such brands as SuperCuts, MasterCuts and Regis Salons.
The strategy is part of New York hedge fund Starboard Value LP's efforts to revitalize Regis, the world's largest operator of some 12,700 hair salons worldwide. In recent years, Regis has faced stiff competition from rivals such as Great Clips and Fantastic Sam's, plus an overall slowdown as consumers cut back on haircuts in a tough economy.
"The Hair Club business is not a real strategic asset for them," said Daniel Hofkin, an analyst with William Blair & Co. in Chicago. "So now Regis can take the attention that was being diverted to Hair Club and redeploy it to the main business."
The news Monday did not move Regis' stock much: It closed at $17.81 a share, up just 39 cents or 2.24 percent.
The sale of the Hair Club unit has already been the subject of controversy. Last month, a group of 10 doctors contracted by Hair Club sought to block the then-rumored sale, fearing Aderans would eliminate Hair Club's surgical business. They had threatened to sue if the sale went forward. A Denver lawyer for the group, Scott Tarbox, did not return phone calls on Monday.
Regis Chairman Joel Conner said the deal, expected to close in the third or fourth quarter this year, "represents an opportunity to exit a non-core business on attractive terms while taking another significant step in refocusing operational resources on expanding sales, margins and profitability of salon operations."
But Baird Equity Research analyst Erika Maschmeyer wrote in a note to investors that, despite the sale "continue to expect [a] gradual and choppy turnaround."
That turnaround will largely fall on the shoulders of Regis' new CEO, Daniel Hanrahan, who takes the helm Aug. 6. Hanrahan formerly headed the Celebrity Cruises business of Royal Caribbean Cruises.
In April, Regis sold its stake in Provalliance, a major European hair salon company, for about $105 million.
Founded in 1976 as Hair Club for Men, Regis bought the business in 2004 for $210 million in cash. The hair restoration business now has 96 company-owned and franchised outlets nationwide and generates an annual operating profit of $30 million on sales of $140 million.
In 2003, it changed its name to Hair Club for Men and Women and began marketing to women, who now represent about 35 percent of all new customers.
Hair Club generates most of its business through infomercials that direct the hair-challenged to call center employees who set up consultations at one of the company's centers, which typically are located in office parks that allow for privacy.
Before Starboard's involvement in Regis, the company viewed Hair Club as a vehicle for "organic expansion" aimed squarely at aging baby boomers entering their peak years of disposable income who are intent on improving their physical appearance.
Still, the $4 billion hair-restoration business remains highly fragmented, with Hair Club holding a 5 percent stake in the market.
Aderans President Nobuo Nemoto described the company's mission on its website as using "our hair-related businesses to help as many people as possible acquire the physical and emotional qualities that underpin the realization of dreams and promote a good impression, and in so doing, bring smiles to faces and support happy lives."
Regis said it expects to record a non-operational, after-tax gain of $8 million to $12 million when the sale closes.
Star Tribune staff writer Jennifer Bjorhus contributed to this report.
Janet Moore 612-673-7752