Coverage: Unilever wants to buy Jessica Alba’s company for $1 billion

Unilever PLC is in talks to acquire Honest Co., the consumer products e-retailer co-founded by actress Jessica Alba, according to media reports.

Serena Ng and Sharon Terlep of The Wall Street Journal had the news:

Unilever, maker of Dove soaps and Axe body sprays, is discussing a deal valued at over $1 billion but significantly less than the $1.7 billion valuation that was placed on Honest in a fundraising round last year, the people said. The talks are at an early stage, and Honest hasn’t ruled out going for an initial public offering instead, one of the people said.

Honest has raised more than $200 million from outside investors since the Santa Monica, Calif., company’s founding in 2011, according to FactSet data. Those investors include venture-capital firms General Catalyst Partners and Lightspeed Venture Partners as well as money managers Fidelity Management & Research Co. and Wellington Management Co. In the event of a sale, Honest has pledged to pay some investors double their investment.

The company generates roughly $300 million in annual revenue, one of the people familiar said. It sells disposable baby diapers, household cleaners, personal-care and beauty products and has built a loyal following among young mothers. Many consumers buy directly from its website via monthly subscription services. Some items are also sold at brick-and-mortar retailers including TargetCorp. and Whole Foods Markets Inc.

The Honest Company would be the latest in a string of acquisitions in the e-commerce space by larger operations and consumer packaged goods companies. Unilever earlier this year acquired Dollar Shave Club in another massive $1 billion deal, one of a number of large e-commerce acquisitions in recent months. Walmart also acquired Jet.com — another e-commerce operation that was burning through a remarkable amount of cash to grow — for around $3.3 billion.

It also underscores, even with the success of companies targeting a narrow array of products, that e-commerce operations with strong brands may still face steep challenges and make more sense in the scope of larger CPG and e-commerce companies with ample financing. With enough capital — and not subject to the whims of investors and Wall Street — larger operations and consumer packaged goods companies can wait out the loss-leading periods as they grow and potentially end up with highly profitable divisions with strong branding.

Last week, reports emerged that The Honest Company was in talks with larger consumer packaged good companies to sell itself (Re/code first reported the story, and we too heard this was the case). From that information it would seem the batch would have included companies like Proctor & Gamble, but we hear from our sources the deal is probably going to come from Unilever.

Jason Del Ray of Recode reports that Honest has faced litigation and upset customers:

A large chunk of its online sales comes from monthly subscription deliveries of product bundles. This model has faced criticism from some customers who did not realize they were signing up for repeat deliveries and others who have argued it’s too difficult to cancel these repeat orders.

The company is also facing lawsuits that claim some Honest products, such as its detergent, contain chemicals that the company said it would avoid. Another lawsuit alleges that the brand’s sunscreen does not work as advertised. Honest has denied these claims.

As of February, Honest was prepping for an IPO, but by the spring it had put those plans on hold. Sources say the company did not feel the public market was going to be receptive to its offering at that time, even as the M&A space was heating up.