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CINCINNATI — Procter & Gamble Co. (P&G) announced on Thursday the signing of a definitive agreement to merge 43 of its beauty brands with Coty Inc.
Procter & Gamble Co. (P&G) announced on Thursday the signing of a definitive agreement to merge 43 of its beauty brands with Coty Inc.
The $12.5 billion transaction includes P&G’s global salon professional hair care and color, retail hair color, cosmetics, fine fragrances, and select hairstyling businesses.
The transaction will be conducted as a Reverse Morris Trust, meaning P&G will spin off or split off the business, which will then merge with a Coty subsidiary, the companies said. The arrangement is meant to reduce taxes for the companies’ shareholders.
"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," P&G chief executive officer A.G. Lafley said of the deal. "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 10 categories to grow and create value as we focus the energy and resources of the company exclusively on them."
Lafley announced last year that he intended to sell more than half of the company’s brands — as many as 100 in all — to focus on the brands that account for 90% of the company’s sales and 95% of its profits. Divestiture would also allow P&G to grow faster and create more value by making it a simpler company that is easier to manage, he said at the time.
Retailers have since speculated about buyers for the businesses and how new owners might reinvigorate P&G’s venerable brands.
The brands being acquired have annual sales of at least $10 billion, the companies said, or more than double Coty’s revenues for its most recent fiscal year.
With the deal, Coty adds Hugo Boss and Gucci to its fragrances offerings and CoverGirl and Max Factor to its cosmetics portfolio. The deal also adds P&G’s Wella and Clairol brands to Coty’s hair coloring business.
"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," Lafley said today.
P&G said that the tax-efficient nature of Coty’s offer maximizes value for P&G shareholders and minimizes annual earnings dilution. The transaction will result in a significant onetime earnings gain that will be recorded at closing of the transaction, the company said. P&G estimates the onetime gain will be in the range of $5 billion to $7 billion, depending on the final deal value at the time of closing. The companies expect the deal to close in the second half of 2016.