Photograph: © Alec Huff

After a "horrible confluence of events," says Alberto-Culver's Carol Bernick (above), "life is OK."

It was a stunning couple of months for Alberto-Culver Co., the local hair-care products outfit known for its Alberto VO5 shampoo and other popular brands. Amid growing evidence that its business model had become unsustainable, the company launched negotiations last June to divest two of its three main business units. Then in August, as those breakup talks gained momentum, Carol and Howard Bernick, the husband-and-wife team who ran the company-she as the second-generation chairman, he as chief executive officer-shocked the board of directors with their own talk about a breakup: they were separating after 30 years of marriage.

When the company announced this past January that it had agreed to sell its retail chain Sally Beauty Stores and its wholesale distribution arm-which together accounted for almost two-thirds of sales and earnings-to the hair salon operator Regis Corp., the news drew a chilly reception on Wall Street. But the $2.6-billion deal also prompted speculation that the sundering of the company and the Bernicks' split were somehow related-a point the company took pains to deny.

Commenting publicly for the first time on the couple's separation, Carol says that the personal and business turmoil was coincidental, and compounded by other stresses as well. Around the time she and Howard separated, Hurricane Katrina dealt a crippling blow to her alma mater, Tulane University, at which she served as a board member and her daughter was a junior. And to top it off, her 86-year-old father, Leonard Lavin, who founded the company and built Alberto VO5 into a powerful brand, was suffering from health problems. Taken together, it was a "horrible confluence of events," she says.

Today both Carol and Howard point out that, though separated, they are still married, and neither rules out a reconciliation. "We're working through some issues," says Carol, measured and matter-of-fact, and dressed in a tailored tweed suit. "It's obviously not easy." The normally voluble Howard Bernick is even more guarded in an interview in March, but he points to a hopeful sign: "We had lunch together yesterday," he says.

Whether or not the two of them decide to stay together, the company they helped build will go forward in dramatically altered form, assuming the deal with Regis meets with regulatory approval and gets an OK from shareholders, which is expected by late June. Carol, who was better known to company employees than to Wall Street and the public, will remain the executive chairman of a dramatically downsized Alberto-Culver, and becomes the family's public face while V. James Marino, the head of the company's consumer products group, is elevated to CEO. Howard Bernick will be-come nonexecutive chairman of the Minneapolis-based Regis Corp., an oversight role; he plans to remain in Chicago.

The question now is whether the Melrose Park–based Alberto-Culver, with $1.4 billion in sales, can thrive in a world of much larger competitors on the strength of its three remaining core brands-VO5, Tresemmé, and Nexxus-or will get gobbled up by a rival such as France's L'Oréal or Germany's Henkel Group.

Wall Street is betting that the company won't stand alone for long. "The clock is ticking on them as an independent entity," says Peter Goldman, principal and portfolio manager at Chicago Asset Management Co. If time runs out, it would bring to a close one of the more colorful chapters in the annals of successful family-run businesses in Chicago.

Alberto-Culver traces its roots to the mid-1950s, when Leonard Lavin, a driven salesman from Chicago, took notice of a hairdressing product sold out of a tiny storefront in Los Angeles. Alberto VO5 contained "five vital oils" that kept Hollywood stars' hairdos from wilting under the hot lights on the set. After buying the business in 1955, Lavin traveled the country introducing VO5 and other beauty products to the fast-growing discount and drug chains, and he used television commercials to make Alberto VO5 a household name.

Lavin gained financial backing from W. Clement Stone, the Chicago insurance mogul who founded the predecessor of Chicago's Aon Corp. but was probably better known for his motivational book Success Through a Positive Mental Attitude. Distinguished by his pencil-thin mustache and polka-dot bow ties, Stone remained on the Alberto-Culver board for years and died in 2002 at the age of 100.

Lavin was a demanding and exacting boss as he built his hair and beauty products empire. "The Lavins kept the pressure on constantly," recalls their chauffeur of 12 years, John Conover, who adds that they were extremely loyal employers. The Lavins lived well, taking in Bulls and Blackhawks games with Blackhawks owner Bill Wirtz, another longtime Alberto board member. Lavin also raised thoroughbreds on a horse farm he owned in Ocala, Florida. One of his homegrown fillies, the long shot One Dreamer, won the Breeders' Cup Distaff at Churchill Downs in 1994, a race with a $1-million purse.

As a master marketer, Lavin spent much of his time on the road, cultivating customers or looking for the next big product. In his 2003 memoir, Winners Make It Happen, Lavin wrote that he regretted not having spent more time with his family; he recounted how he had turned down an invitation to meet with President Richard Nixon in the Oval Office because his daughter Carol would "never trust [him] again" if he failed to make it to her birthday party.

Carol joined the family enterprise in 1974 following her graduation from Tulane. In the consumer products division, she devised handy new products such as the salt-free seasoning blend Mrs. Dash and Static Guard, a fabric spray for eliminating static cling. Lavin observed that although Carol for many years ran Alberto's consumer division, she never wanted the top job. "She wasn't willing to make the kind of personal sacrifice such a position demanded," he recalled in the memoir. "She saw the difficult choices I had to make throughout her childhood, and she felt that she wanted to be the kind of mother who could attend a school conference at the last moment, drive in a carpool-to be around to help with homework and fix dinner."

Carol says she thought it was important to be there for her kids when they needed her to be there. Her older brother, Scott, had suffered from drug problems and died of a heart attack in 1998, at the age of 48, and she "had his problems in their face," she says. Driving her choices, she says, was the desire that she "would never look back and wish [she] had done something different." Not that she didn't put in long hours. Most often, she booted up her home computer at 4 a.m. "I can't tell you how many kid conversations I had between six and seven in the morning," she says. Her family-friendly values remain part of the culture at Alberto-Culver, where she encourages employees to leave early for a child's softball game or school play. "I don't care which 12 hours of the day you give to Alberto-Culver," she quips.

With Carol focused on rearing the couple's three children, Howard Bernick surfaced as the heir apparent at Alberto. Carol, now 54, had met him on a blind date arranged by mutual friends, "the first and only blind date I ever had," she says. The couple were married in 1976. The son of a Canadian builder and investor, Howard, also 54, worked as an investment banker at First Boston in Chicago before joining Alberto in 1977. Comfortable parrying with analysts over estimates of cash flow and gross margin, he rose through the ranks to become president and chief operating officer in 1986, and CEO when Lavin stepped down in 1994, at the age of 75.

Bernick had his challenges. He developed alopecia, a skin condition that left him bald in his early 40s. He has diabetes and along with his family supports research into the disease and its causes. He also doesn't like to fly, particularly after the company's Gulfstream IV jet, rented at the time to Aon, crashed at Palwaukee Airport, killing all four aboard.   "I have flying anxiety," he acknowledges. "So do a lot of people."

When Bernick assumed the top post in 1994, Alberto-Culver was at a difficult juncture. The beauty and household products unit that once had carried the company was lagging, earning just $20 million on $600 million in sales. Carol recalls tossing a bunch of pennies on the floor before a company meeting; no one picked them up. This is what the company was earning on a bottle of VO5 shampoo, she warned. "If we don't turn these pennies into nickels, we won't have a job."

Following a restructuring of the division, results gradually improved. Last year the unit earned $150 million on sales of $1.4 billion. Besides instilling financial discipline, Howard expanded the company through acquisitions such as California's St. Ives Laboratories, a maker of skin-care products. He also built the company's wholesale distribution arm, Beauty Systems Group (BSG), by buying several regional beauty supply companies.

Wall Street took notice of the Bernicks' moves and the company's improved financial performance. "They started to run the company better, create more wealth for the family," says Linda Bolton Weiser, an analyst at Oppenheimer & Co. in New York. They also took steps that made the stock more investor friendly. In 2003, for example, the company eliminated a second class of voting stock that had given family members disproportionate control in governing the company.

"There's a feeling that if you're a public company, all owners ought to have an equal say," says Craig Aronoff, a Georgia-based family business consultant who follows Alberto-Culver because he serves as an advisory board member of another family-owned hair- and skin-care products company, Nioxin Research Laboratories in Atlanta. "Concentrated ownership creates a situation where there's a lack of accountability." By ceding some of their control, the family members were saying, in effect, "We will accept financial accountability," Aronoff says.

Since February 2004, the Bernicks liquidated part of their stake in the company through a mix of public and private sales at prices ranging from $46 to $60 a share. According to insider transaction records, Howard Bernick sold or planned to sell an estimated $190 million worth of stock, while Carol Bernick sold or planned to sell shares valued at $263 million. (Howard still owns 1.3 million shares, or 1.4 percent of the company's stock, worth almost $60 million. Carol and her father control 12.6 million shares, or 13.6 percent, worth more than $580 million. Howard Bernick will be paid a $6.7-million package on his departure from Alberto.) When insiders dump shares, it can be a red flag for investors, a signal to bail out of the stock. But Carol says the stock sales were a necessary diversification because at one point, 95 percent of the family's net worth was tied up in Alberto stock. "I'm all for the family hardware store," she told her dad, but having so many eggs in one basket wasn't wise.

The Bernicks are considerable philanthropists through four family foundations, although Carol declines to disclose annual donations. One of her favorite causes is Chicago's Prentice Women's Hospital and Maternity Center of Northwestern Memorial Hospital, where she founded the support group Friends of Prentice to raise money to improve the quality of women's health care. (She had had difficult pregnancies, including a premature baby and a stillbirth.) The group has raised $10 million, including typically $500,000 at the annual fundraiser that she calls "one of the best parties in the city." And she is a benefactor of Tulane, where the family underwrote a portion of the $37-million expansion of the student center, now called the Lavin-Bernick Center for University Life.

Although Alberto-Culver had performed well over the past five years, its increasingly complicated business model was beginning to cause problems with both suppliers and customers. The company sold its own beauty and hair-care brands through its Sally Beauty Stores, a 2,400-unit retail chain, which competed with Alberto's own retail customers, such as Wal-Mart, that also carried those products. Meanwhile, Alberto's wholesale unit distributed to salons products that it bought from the likes of L'Oréal and Procter & Gamble Co., whose brands competed directly with Alberto-Culver's in retail stores.

The vulnerability was painfully demonstrated in late 2004, when P & G pulled its Wella and Sebastian lines from Alberto's wholesale channel and set up its own distribution system, hiring away Alberto's sales representatives who handled those products. P & G "didn't want Alberto having information on its two core brands sold in salons," says Lauren DeSanto, an equity analyst at Morningstar in Chicago. Even worse, Alberto had to scramble to replace the sales representatives, whose defection led to a decline in profits for that unit last year.

As these events played out, speculation mounted on Wall Street that an outright sale of Alberto was in the cards. Anticipation peaked in February 2005, when shares rose to more than $55. Howard Bernick "was giddy, overly positive," says Weiser, the Oppenheimer analyst. "I think they had a deal at that point. Then something happened; the tone changed. [Bernick] was more negative." Alberto stock drifted down, to a low of $42 in June. No prospective suitor, it seemed, had an appetite for the conflicts it would inherit by acquiring Alberto wholly intact, complete with its retail operations. "Sally was a poison pill," says William Schmitz, an analyst at Deutsche Bank Securities in New York.

Meanwhile, Bernick forged ahead in the spring of 2005 with another acquisition-Nexxus, a decades-old brand of shampoos and other products sold exclusively in salons at premium prices-to complement Alberto's hair-care line. His plan was to sell the products through large-volume, price-slashing retailers such as Wal-Mart, a move that would not sit well with the salons that had long carried the product. An irritated Paul Finkelstein, the CEO of Regis, which operates 11,000 salons under such names as Supercuts and Vidal Sassoon, warned Bernick, "You will be a pariah in this industry."

As the pressures mounted, Bernick acknowledged that Alberto would be better off separating its businesses. Bernick and Finkelstein had talked casually about a possible deal on and off for ten years, but Bernick would not commit. Last June the two men opened talks in earnest, and in January announced a tax-free deal to merge Sally and Beauty Systems Group with Regis. Alberto shareholders will receive Regis shares and a one-time $3 dividend.

The deal received a thumbs-down on Wall Street, and the stock traded down in the weeks after the announcement. Investors were disappointed that Alberto had failed to command a premium for its shares, but the company's conflicted business model had left it with few good options. Still, "it's an interesting, if not a brilliant, solution to the problem that Alberto faced," Aronoff says. With the company's business units now separated, he says, "there's a tremendous opportunity for increasing value."

With Bernick leaving Alberto to become nonexecutive chairman of Regis, observers wondered whether the couple's rift was due to differences over the business or other personal problems. Analysts say there was no dissatisfaction with the way Howard was running the business. "Investors liked [Bernick]; he created value," Weiser says. "If there were problems, he could have left."

With the retail conflict now eliminated, Sally Beauty Stores will be able to advertise more aggressively, Bernick says. And BSG will be a more attractive distributor with access now to Regis's thousands of salons. But the deal does not eliminate all potential problems. An independent salon operator may prefer not to buy products from Regis because it owns competing beauty shops.

As for the downsized Alberto-Culver, analysts say if the unit isn't able to grow quickly, it would be an attractive addition to much larger multinational firms such as L'Oréal, Henkel, or Japan's Kao Corp., owner of the Jergens skin-care brand.

Howard Bernick says he has heard predictions of Alberto's demise for years, but "we go from record year to record year," he says. There's always room for another entrepreneurial company, but, he quickly adds, "we're always sensitive to shareholder value."

The fate of the company will be largely up to the incoming CEO, Marino, an alumnus of Helene Curtis Industries, the Chicago area hair-care products concern that was sold to Unilever in 1996.

As executive chairman, Carol Bernick will assume a different role, dealing more with strategic planning, succession, leadership development, and encouraging the work force, or "pumping them up," as she puts it. As for her marriage, Carol is fatalistic. If attempts at reconciliation aren't successful, "we'll be good friends," she says. The company functions well, and both sides have kept their cool-no angry outbursts or outrageous behavior. "I've raised great kids, and none of that is going away," she adds. "Life is OK."