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By John Schmeltzer, Tribune staff reporter. Staff reporter James P. Miller contributed to this story
Published January 17, 2006

Alberto-Culver Co.’s controversial deal to sell its Sally Beauty Supply division may have as much to do with allowing the company’s longtime chief executive to quietly depart the company as it does with streamlining the business.

The 50-year-old Melrose Park-based company announced last week that it is selling its Sally division, which represents 60 percent of its revenue, to Edina, Minn.-based Regis Corp.

It was a deal that initially sent Regis’ stock soaring nearly 10 percent and brought Alberto-Culver shares down about 4 percent–just the opposite of what typically occurs when a company sells a division. Alberto-Culver’s stock continued dropping as Wall Street voted emphatically that it didn’t like the deal.

Unbeknown to most stockholders, however, is a family dispute that has resulted in separate living arrangements for top officers Carol and Howard Bernick, who have been married for more than 25 years. Carol Bernick succeeded her father, company founder Leonard Lavin, as chairman in 2004, while Howard Bernick is the current president and chief executive.

Howard Bernick is leaving Alberto-Culver as part of the sale to become non-executive chairman of Regis.

“The Bernicks are currently living separately in an amicable arrangement,” said company spokesman Dan Stone. “There is no formal separation agreement or discussion of divorce.”

“This is a private matter that has not impacted their business roles,” he said, adding that the separation “was neither an issue nor a factor” in the board’s decision to spin off the beauty supply group.

The deal calls for Alberto-Culver to spin off Sally to shareholders, who will then receive Regis Corp. stock currently valued at $2.15 billion. As part of the deal, Sally will borrow $400 million and give it to Alberto-Culver, which will pay a $3-per-share special dividend.

Stone said Alberto-Culver had been contemplating the strategic rationale of such a split for more than a decade and that the board had discussed it for more than a year.

Splits in the executive suite are not uncommon in corporate America, according to the National Federation of Independent Business. There are more than 1.2 million husband-and-wife teams running firms together, according to the federation. Of that number, only 10 percent of the couples who divorce continue working together.

Most splits, however, occur in much smaller firms, rather than in large firms that are traded on the New York Stock Exchange where stock prices can become an issue.

Such is the case with Alberto-Culver. Even without disclosure of the separation, Alberto-Culver’s stock was down 7 percent since Jan. 9, the day before the Sally deal was announced. Shares of Regis, which operates nearly 11,000 beauty salons under such names as Supercuts, BoRics and Vidal Sassoon, were down 2 percent in that period.

Lauren DeSanto, an analyst for Chicago-based Morningstar Inc., said recently that the agreement to sell Sally was “a fair but unspectacular deal, a perfect example of Alberto’s pursuit of singles, rather than home runs. The deal appears to be strategically smart and in the best interest of both Alberto and Regis shareholders longer term, even if it doesn’t knock the ball out of the park.”

“As much as we like the balance Sally gave to Alberto, we doubt it ever offered the firm many synergies, and we suspect that its owIt is Carol’s family business, and Leonard [Lavin] is still to be reckoned withn growth has been hindered somewhat,” she said.

Increasingly, Alberto-Culver said it had encountered friction from companies that were competitors in one market but suppliers in another.

Peter Goldman, of Chicago Asset Management Co., said Monday that the disclosure the Bernicks are separated “doesn’t really change anything.”

“It is Carol’s family business, and Leonard [Lavin] is still to be reckoned with,” he said. “I assume everybody on the board is doing what needs to be done.”

Alberto-Culver was founded by Lavin and his wife in 1955, when he bought the company from a man named Culver, whose chemist, who was named Alberto, developed the original formula for Alberto VO5.

Carol Bernick and her father control 12.2 million shares, or 14 percent, of the company’s stock, valued at more than $500 million, while Howard Bernick owns 1.3 million shares, or 1.4 percent of the stock, valued at more than $50 million.

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