By Martinne Geller and Ismail Shakil
(Reuters) - Unilever Plc <ULVR.L> is to buy U.S.-based Dollar Shave Club, expanding its presence in the growing market for male grooming products and sharpening its rivalry with Procter & Gamble <PG.N> which owns the Gillette brand.
The surprise move by Unilever, which makes Axe body spray and Dove soap, shows how e-commerce is disrupting the market for consumer packaged goods.
It also reduced the attractiveness of rival razor maker Edgewell Personal Care <EPC.N> as a takeover target, analysts said, sending its shares down 1.9 percent.
Unilever, P&G and others have put more focus on men in recent years, trying to coax them into spending more on deodorants, skin creams and hair products.
Terms of Unilever's deal, announced late on Tuesday, were not disclosed. However, Fortune cited sources saying it is paying $1 billion in cash for the company, which sells razors and blades directly to consumers via online subscriptions .
Unilever declined to comment on the report.
Dollar Shave Club's turnover is expected to grow to over $200 million in 2016 from $152 million last year, Unilever said.
Based on those figures, Unilever would be paying five times annual sales for Dollar Shave Club, higher than most U.S. consumer deals, which get done at below four times.
Jefferies analysts said the deal gives Unilever 60 percent of the U.S. subscription "shave club" market, versus only 5 percent for P&G's Gillette, and 11 percent of the U.S. blades market overall.
"Unilever are parking their tanks on P&G's lawn in one of their most profitable categories," Jefferies said, adding that the move risks potentially value-destroying retaliation.
Unilever and Procter have a history of battle. In 2013, they fought a price war for haircare products that ate into margins.
Dollar Shave Club founder Michael Dublin will continue to run the company after the deal closes, expected in the third quarter of 2016.
THE BEST UNILEVER CAN GET?
The U.S. market for men's grooming products rose 4 percent last year to $8.5 billion, according to Euromonitor, fueled by online sales of men's shaving products which it said reached $342 million.
Analysts were divided on whether Unilever's purchase of Dollar Shave Club makes it more likely to go on to buy Edgewell which has brands including Schick and Edge.
Canaccord Genuity analysts said they still see Edgewell as a further possible target, as Unilever would look to build scale, but Bernstein said it could just keep attacking Edgewell and Gillette without owning the manufacturing.
This deal does, however, make Edgewell less attractive to other potential suitors such as Henkel <HNKG_p.DE>, Johnson & Johnson <JNJ.N> and Colgate-Palmolive <CL.N>, Bernstein said, since they would have to compete with both P&G and Unilever.
"This was a smart tactical move by Unilever in that it puts up barriers to others who might want to acquire Edgewell, while leaving it as an option to come back to and build scale," Bernstein said.
(Reporting by Ismail Shakil in Bengaluru; Editing by Sunil Nair)