Coty said to be closing in on P&G acquisition

By Simon Pitman

- Last updated on GMT

Coty said to be closing in on P&G acquisition

Related tags Revenue Procter & gamble

Share prices in Coty have risen significantly as rumors gather pace that the company has won out in the bidding war to buy part of Procter & Gamble’s beauty portfolio.

Sources close to the deal say that the slice of the portfolio is valued at approximately $12bn, which accounts for a significant portion of a business that totaled sales of $83 billion in 2014.

This weekend a Reuters report cited that the transaction is likely to be completed in the course of the next two weeks, using a ‘Reverse Morris Trust’, which means the business will be spun off as a separate company to make the transaction more tax efficient.

Although there has been a lot of merger-and-acquisition activity of late in the cosmetics and personal care sector, most of those transactions have been characterized by the big players buying up smaller and newer businesses, many of which have been in the luxury segment.

Largest cosmetics acquisition in ten years

This particular transaction is said to be the largest of its kind in over ten years - probably the biggest since P&G merged with Gillette in 2005, and also puts the emphasis back on the mass market category, which in recent years has been less of a focus for investments.

Separately, rumors about the transaction have been clearly heard by investors, who have rallied around Coty share prices, leading to double-digit percentage gains that saw share prices hovering around the $31 mark in trading on Tuesday.

As the bidding process for the P&G brands that are up for sale has approached its final stages, analysts and experts had been increasingly pointing the finger at both Coty and Henkel as being the most likely businesses to walk away new acquisitions.

The list of bidders gets smaller

Previously Revlon, Coty and Henkel were tipped as the top prospective bidders, but as the process draws to its conclusion, other newspaper reports have increasingly focused on Coty and Henkel as insiders said they are bidding for different parts of the business.

New York-based Coty, which is focused on fragrances and luxury cosmetics, was said to have submitted specific bids for both the parts of P&G’s fragrance and cosmetics business that are for sale.

Likewise, Germany-based Henkel, which is a big player in the European contract manufacturing and own-brand business, was said to have made an offer for the P&G hair care brands that are under the hammer.

However, with Coty’s total bid of $12bn, it suggests that the company may well be walking away with the vast majority of the assets that P&G has for sale.

Outlook is tough

For its most recent second quarter, P&G reported net sales down by 4% to $20.2bn, a figure that was impacted by currency translations and a 1% fall in organic sales for its hair, beauty and personal care division – the only one of its four divisions to see a decline.

The company said that the decline was mainly driven by a fall in sales in the Prestige and Skin and Personal Care categories, as demand for products such as Olay dropped.

Looking ahead to full year 2015 sales, the company is predicting that revenues will fall by 5%, while net earnings will decline by 12%.

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