Coty is on track to acquire Proctor Gamble’s beauty business in a $12bn (£7.7bn) deal that would make the US cosmetic company the world leader in perfume and haircare.
If the deal goes though, sources close to it said, Coty would get its hands on brands such as Gucci and Hugo Boss perfume, Wella and Clairol hair care products and Max Factor and Cover Girl makeup, part of its strategy to reverse its own declining sales trends.
For PG, the sale is part of a large plan to narrow its focus on fewer, faster-growing brands. The world’s No 1 household products maker said in August it could sell about half of its slow-growing brands over the next two years. Last year, it sold its Duracell batteries to Warren Buffett’s Berkshire Hathaway for $4.7bn and sold some of its soap brands to Unilever.
Coty was vying with Henkel for PG’s hair care businesses and won an auction over the weekend, the sources said, adding that details of the complex transaction are likely to take at least two weeks to be finalised.
For tax purposes, the deal would be completed through a “Reverse Morris Trust”, which means that PG would spin off its beauty assets into a separate company that would then absorb Coty in an all-share deal, the sources said.
Luxembourg-based JAB Holdings, the billionaire Reimann family’s investment firm which controls 75% of Coty, would own about a third of the equity in the combined business and about 47%-48% of voting rights, sources said.
PG, Coty and JAB Holdings declined to comment.
Wells Fargo analyst Chris Ferrara said a deal would be “transformational” for Coty and estimated it would increase its revenue to nearly $11bn from $4.4bn. “A large deal would likely give Coty the opportunity to quickly exit ‘tail’ (poorly performing) brands and sustainably raise the company’s growth profile,” he said.
In response to lower sales, Coty has been cutting costs and shedding staff. It has also been through much organisational change, merging divisions and replacing chief executives three times in the past three years.