The final details are yet to be confirmed, but P&G wants it structured as a Reverse Morris Trust, which will have the beauty business separated from P&G and merged with a Coty subsidiary.
P&G shareholders would receive 52 % of outstanding stock in the combined company, with Coty shareholders getting 48%.
The transaction will instantly create one of the world’s largest beauty companies, with pro forma combined annual revenues of more than $10 billion based on fiscal year 2014 performance, doubling the size of Coty.
The deal includes leading fragrance brands such as Hugo Boss, Dolce & Gabbana and Gucci, which will only go to serve Coty’s strongest segment; while colour cosmetics brands CoverGirl and Max Factor will certainly boost this business too, joining colour cosmetics brands such as Rimmel, OPI, and Sally Hansen.
“With the Beauty talent from both sides and the fantastic portfolio of world-class brands, we have the opportunity to create a highly focused, pure-play leader and challenger in Beauty which can deliver exciting opportunities and benefits for employees, licensors, customers and suppliers,” says Bart Becht, Chairman and Interim CEO of Coty.
“There is no question that with the broader offering of leading brands, strong brand support, the development of a better pipeline of innovative products and the much broader geographical reach and scale, Coty will strengthen its competitive position and ability to capitalize on revenue and profit growth opportunities over time.”
The transaction also sees Coty take steps into uncharted territory, with an exposure to the hair styling world with P&G’s hair colour business, led by Wella and Clairol.
In its initial announcement, Coty claims that this presents and ‘attractive’ option for the company, but some analysts are unsure as to how Coty will do.
“Coty are not present at all in hair care, so it is difficult to assess how they will do with the acquisition,” Euromonitor analyst Oru Mohiuddin told CosmeticsDesign-Europe.com.
“Buying fragrance and colour cosmetic brands makes sense given Coty’s strength in these markets, but they have taken on a lot.”
The transaction will also significantly expand Coty’s geographical footprint, providing scale in large beauty markets like Brazil and Japan, while also increasing critical mass in important geographies in which it currently operates, such as in North America, Europe, the Middle East and Asia.
For P&G it is the next step for the company as it looks to streamline its portfolio sand concentrate on core brands, defined as 10 categories and 65 brands.
“The merger with Coty, a strategic acquirer, will provide an excellent new home for these businesses and brands, as well as for the talented people who are operating them,” says P&G President and CEO, AG Lafley.
“We look forward to a successful transition and we will work together to maximize value for the shareholders of both companies.”