Procter & Gamble to Sell Beauty Unit to Coty
Coty Inc has sealed a deal to buy Procter & Gamble Co's beauty business, which includes brands such as Clairol and Wella, in a $12.5 billion transaction that will make Coty the world leader in perfume and hair care.
Coty's shares fell 6 percent in early trading after the widely expected deal, while P&G was up 0.6 percent.
In a tax-efficient deal designed as a "Reverse Morris Trust" transaction, P&G will separate 43 of its cosmetics, fragrance and haircare brands and fold them into Coty.
The deal is a game-changer for Coty as it adds popular brands such as Wella and Clairol hair color products and Cover Girl and Max Factor make-up to its portfolio of perfume brands that include Marc Jacobs and Calvin Klein.
Coty will also gain access to Gucci and Dolce & Gabbana perfumes as part of the deal.
For P&G, the sale is part of a plan to narrow its focus on fewer, faster-growing brands. The world's No. 1 household products maker said last year it could sell about half of its slow-growing brands.
The combined company is expected to have annual revenue of more than $10 billion - double Coty's turnover - and will be led by Coty CEO Bart Becht.
Coty, which is trying to staunch a decline in sales, said it expects hair color products to account for 24 percent of total sales after the deal is completed.
Coty said it expects to generate about $4.5 billion in annual sales from its fragrance business, making it the world's largest fragrance company by sales.
It also expects to become the third largest brand in the color and cosmetics sector, behind L'Oreal and Estee Lauder.
JAB Cosmetics B.V. owns 97 percent of Coty's Class B shares is in favor of the deal, Coty said. JAB is controlled by Germany's billionaire Reimann family.
Coty said the deal valued the P&G Beauty Business at $12.5 billion at the time of the proposal. Based on Coty's current stock price, outstanding shares and equity grants, the value of the transaction is about $15 billion, P&G said.
P&G estimated a one-time gain of $5 billion-$7 billion, depending on the final deal value at the time of closing.
Reuters first reported in June that Coty was on track to acquire P&G's brands in a $12 billion deal.
Goldman Sachs advised P&G, while Morgan Stanley was the lead adviser for Coty. (Additional reporting by Ramkumar Iyer in Bengaluru; Editing by Saumyadeb Chakrabarty)