Coty explores sale of professional beauty unit
By Aaron Kirchfeld - Oct 22nd, 10:40
Coty, under pressure to turn its business around, is considering a sale of its professional hair and nail products unit that includes the brands Wella, Clairol, and OPI. The shares surged the most in more than five months.
The cosmetics company hired Credit Suisse to help it explore options for the professional business, which sells to salons and is expected to make $2.7bn in sales in 2019. It is also looking at a sale of its Brazilian operations and expects a review to be completed by next July, according to a statement.
A sale is expected to kick off in 2019 and attract interest from both rival beauty companies and private equity firms, according to a person familiar with the matter. Coty is open to reviewing bids for all and parts of the business as it aims to raise as much money as possible, said the person, who asked not to be identified because the details are private.
Coty has been formulating a comeback plan after a difficult few years. In July, CEO Pierre Laubies laid out the first steps of a turnaround plan intended to revive margins, reduce leverage and better keep up with its rivals. He said at the time some brands could be on the chopping block.
Coty may attract similar suitors that bid for Nestle SA’s skincare business, which it sold to a group led by EQT AB for Sf10.2bn ($10.1bn) earlier in 2019. Other bidders for all or part of that business at the time included KKR, PAI Partners, Advent International, and Cinven as well as Colgate-Palmolive and Unilever, people familiar said at the time. German beauty and chemicals company Henkel had also previously looked to acquire Wella in 2015.
Proceeds from any potential transaction will be used to pay down debt and return excess cash directly to shareholders. JAB Holding, the company’s biggest shareholder, said in the statement that it supports the move.
Coty spokeswoman Lisa Kessler said that the strategic review includes looking at some of Coty’s retail hair products as well. That could include the Wella and Clairol products, as well as GHD appliances sold at grocery stores and pharmacies in addition to the professional equivalents. The OPI retail business is also under the review, she said.
“This is not about our lack of belief in the professional business,” Kessler said in an interview. “It’s part of our strategic review for our turnaround plan.”
Shares of Coty climbed as much as 13% to $11.46 in New York, the biggest intraday gain since May. While they had already climbed 54% in 2019 through Friday’s close, they are well below their high of more than $32 in mid-2015.
Coty has felt pressure to make a change. Earlier in 2019, it took a $965m writedown on the value of the brands it agreed to purchase from Procter & Gamble in 2015, including CoverGirl and Clairol. Coty shares have tumbled since that deal was announced.
Meanwhile, rival cosmetics companies have been rapidly acquiring hot new brands as they search for the next big hit, often picking labels that attract younger, trendier shoppers. In July, it said it will take a separate $3bn writedown as its aging mass-market brands face new competition.
Selling the Brazilian and professional divisions would let the company focus on its fragrance, cosmetics and skincare businesses.
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