P&G accepts $12.5 billion Coty offer for 43 beauty brands

In a historic cosmetics merger, Coty will acquire fragrance, cosmetics and hair care brands

Based on Coty’s current stock price and outstanding shares and equity grants, the value of the transaction is approximately $15 billion... The final value of the transaction will be known at closing based on Coty’s stock price, Coty’s outstanding shares and equity grants, and the amount of assumed debt. — P&G CEO Alan Lafley

In a historic cosmetics merger, Coty will acquire 43 beauty brands - including fine fragrance (Gucci, Hugo Boss and Dolce & Gabbana), colour cosmetics (CoverGirl and Max Factor) and hair care brands (Clairol and Wella) - from Procter & Gamble for US$12.5 billion. According to P&G, this will be a Reverse Morris Trust split-off transaction, "in which P&G shareholders could elect to participate in an exchange offer to exchange P&G shares for shares of Coty. P&G shareholders would have the option of exchanging all, some or none of their P&G shares."

P&G is divesting itself of these brands in order to invest more in its core areas, and has also reduced the company's non-manufacturing staff by almost a third. According to Lafley, the company will focus on “10 categories and 65 brands that best leverage P&G’s core competencies. We have leading global brand positions in these categories, consumer preferred products and leading brands in the largest markets. These businesses and brands have historically grown faster and have been more profitable than the balance. We expect these ten categories to grow and create value as we focus the energy and resources of the company exclusively on them.”

The sale is a win-win situation for both Coty and P&G. P&G estimates that the merger will bring a significant one-time gain "in the range of $5 billion to $7 billion, depending on the final deal value at the time of closing."

Coty owns brands such as Calvin Klein and Chloe fragrances, and the purchase will make it the world leader in fragrances, ahead of both L'Oréal and Estée Lauder. Coty announced that the move would result in "pro forma combined annual revenues of more than $10 billion," and "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 COTY currently operates, such as in North America, Europe, the Middle East and Asia."

The details of the transaction are expected to be finalised over the next few months, and closed in the second half of calendar year 2016, pending regulatory approvals.

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