P&G Accepts Coty’s $12.5 Billion Offer

It's a done deal—make that a done mega-deal. As widely-speculated, Coty is acquiring 43 of Procter & Gamble's beauty brands in a complicated deal valued at $12.5 billion. The agreement, a Reverse Morris Trust (RMT) transaction, includes P&G’s global salon professional hair care and color, retail hair color, cosmetics and fine fragrance businesses, along with select hair styling brands.
The move will double the size of Coty, creating a $10 billion player in the global beauty industry. Specifically, the move will make Coty the global leader in fragrances and to significantly enhance its position in color cosmetics.  P&G’s businesses include leading fragrance brands such as Hugo Boss, Dolce & Gabbana and Gucci and the color cosmetics brands CoverGirl and Max Factor. The transaction also gives Coty an attractive new category in the beauty industry through the addition of P&G’s hair color business, led by Wella and Clairol. 

“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,” said 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 will 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.



“This represents a significant step forward in the work to focus our portfolio on 10 categories and 65 brands that best leverage P&G’s core competencies,” said P&G Chairman, President and Chief Executive Officer, AG Lafley. “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.”


Lafley added that 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.


“We look forward to a successful transition and we will work together to maximize value for the shareholders of both companies,” said Lafley.


According to P&G, the tax-efficient nature of the $12.5 billion offer maximizes value for P&G shareholders and minimizes annual earnings dilution. The transaction will result in a significant one-time earnings gain that will be recorded at closing of the transaction. P&G currently estimates the one-time gain will be in the range of $5 billion to $7 billion depending on the final deal value at the time of closing. Beginning with fiscal year 2015-16 reported results, the earnings from the RMT Brands will be reported as discontinued operations (i.e. removed from core earnings per share) in both the current and prior year periods. The specific earnings amount to be restated will be provided at a later date.


P&G is targeting to pay dividends and retire shares worth up to $70 billion over a four year period from fiscal years 2016 to 2019 through a combination of shares eliminated via this RMT Brands transaction and the previously announced Duracell transaction, ongoing discretionary share repurchase and continuing its strong history of dividend payments. P&G is committed to maintain our current credit ratings.


Although a final decision has not been made on the form of deal, P&G expects to do a split-off or spin-off transaction. P&G’s current preference is for 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. If executed as a split-merge, P&G would establish a separate entity to hold the RMT Brands, which would be transferred to electing P&G shareholders in a tax-efficient transaction with a simultaneous merger of the new entity with Coty. We expect to finalize the details of the transaction in the coming months and to close the transaction in the second half of calendar year 2016, pending regulatory approvals.