Coty will pick up 43 beauty brands in a deal with Procter & Gamble.
Coty agreed Thursday to buy 43 of Procter & Gamble Co.’s beauty brands for about $12.5 billion in a deal that would more than double its sales and transform it into one of the world’s largest cosmetics companies.
The transaction will be conducted as a Reverse Morris Trust, meaning P&G will spin or split off the business, which will then merge with a Coty subsidiary, the companies said. The deal is meant to reduce taxes for the companies’ shareholders.
New York-based Coty is betting it can revive brands that struggled under P&G and gain greater access to markets like Brazil and Japan.
The deal adds Hugo Boss and Gucci to Coty’s fragrances unit, CoverGirl and Max Factor to its cosmetics portfolio and brings it into hair color with Wella and Clairol. The combined businesses have annual sales of more than $10 billion, compared with $4.55 billion for Coty in its most recent fiscal year.
“The P&G brands have bigger clout in some of these markets,” said Jason Gere, an analyst at KeyBanc Capital Markets. “It’s not like they’re in great shape and you just plug and play. These are businesses that probably do need a little more investment.”
Investors may be wary of the work that Coty needs to do. The shares fell 4.7 percent to $30.04 at the close in New York, while Cincinnati-based P&G slipped 0.4 percent to $80.66. Coty’s shares have surged 45 percent this year, with much of the gain coming on reports that the deal was in the works.
Now, shareholders are dealing with a reality that’s more complicated. The deal will take at least a year to close, and the projected savings for Coty are lower than many investors may have expected, Gere said.
With the sale, P&G cedes its position as the largest beauty-product seller to L’Oreal, according to Euromonitor International analyst Oru Mohiuddin.