Coty focus will be on strengthening position and expanding globally, says CEO


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Coty focus will be on strengthening position and expanding globally, says CEO

Related tags Procter & gamble

Coty interim CEO Bart Becht says the company’s focus will be on becoming a top beauty challenger, strengthening its critical mass in key markets and expanding into new ones, following the merge of Procter & Gamble Company’s fragrance, colour cosmetics, and hair colour businesses.

As we reported last week​, the deal will complete in a tax-free Reverse Morris Trust transaction based on a proposal by Coty valuing the P&G Beauty Business at approximately $12.5 billion at the time the proposal was made.

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, strengthening its leadership position in the $300 billion global beauty industry.

Big opportunity

And according to Coty chairman Becht, there is no question that acquiring brands such as Hugo Boss, Dolce & Gabbana and Gucci to enhance its leading position in fragrance, and CoverGirl and Max Factor to strengthen its colour cosmetics business, will give the company a great opportunity to push on.

“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,”​ he says.

“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.”

Enhanced portfolio

Colour cosmetics and fragrance brands make perfect sense for Coty to acquire; but in the deal it will also be integrating the Wella and Clairol brands, giving the company its entry into hair care.

The big question is whether Coty will concentrate on this market to try and make a success of it, or divest these brands further down the line, given that there were other potential suitors interested.

According to Becht, the hair care brands present the company with an ‘attractive’ option and Coty says it will significantly expand its geographical footprint, providing scale in large beauty markets like Brazil and Japan, while also increasing critical mass in important geographies in which the company currently operates, such as in Europe, North America, the Middle East and Asia.

However, not everyone is convinced that this will be such an easy ride for Coty, given that it has never had expertise in the hair care category.

“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 last week.

“Buying fragrance and colour cosmetic brands makes sense given Coty’s strength in these markets, but they have taken on a lot.”

Financial sense

Based on fiscal year 2014 results, Coty and the P&G Beauty Business would have more than $10 billion in combined pro forma revenues, doubling the size of Coty.

The P&G Beauty Business achieved revenues of $5.9 billion in the fiscal year ended June 2014, with a carve-out EBITDA of $1.2 billion, which excludes approximately $400 million of allocated overhead costs that will not be transferred with the business.

Bart Becht adds: “our combined operational and financial platform will allow us to drive meaningful EPS accretion and generate substantial incremental free cash flow over the long term, giving us a strong balance sheet with a conservative leverage profile.”

“All of this has the potential to lead to accelerated value creation for Coty shareholders.”

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