Coty Inc, the well-known global beauty company, has recently announced a major decision to sell a majority stake in its popular hair and nail care brands, such as Wella and OPI. This significant move involves selling the stake to U.S. buyout firm KKR & Co Inc in exchange for an impressive $3 billion in cash. The purpose behind this strategic decision is to simplify Coty’s extensive product portfolio and ultimately reduce its debt burden.

As a direct result of this news, Coty’s shares experienced a considerable increase of 15%, showing positive market reaction to the decision. In addition to the sale, the company has also unveiled its plans to cut down costs by a staggering $700 million. Furthermore, KKR has committed to making an additional investment worth $1 billion in Coty. With all this in motion, Coty aims to streamline its overall operations and refocus on its core business.

In recent years, Coty has faced various challenges, including declining sales and increasing debt. To combat these issues, the company decided to divest some of its brands. The hair and nail care brands that are being sold were originally valued at around $7 billion prior to the COVID-19 pandemic. However, due to the global crisis, which has largely shifted consumer behavior towards online beauty products like at-home dye kits, traditional brick-and-mortar retailers have experienced a decline in sales.

Coty’s brand portfolio became incredibly complex after its acquisition of over 40 brands from Procter & Gamble in 2016. The integration process proved to be highly challenging, leading the company to reevaluate its strategy. In an attempt to boost sales, Coty made significant investments in Kylie Jenner’s makeup and skincare businesses, hoping to leverage her massive social media following of more than 270 million followers. Unfortunately, despite these efforts, Coty reported a wider-than-expected loss and a significant 23% decline in revenue during the first quarter of 2020.

Apart from acquiring a majority stake in the hair and nail care brands, KKR will also have the authority to appoint two board members. Coty has additionally announced its decision to suspend its dividend for the upcoming year. Under the terms of the deal with KKR, the hair and nail care brands will operate as an independent company, with KKR holding a 60% stake, and Coty retaining the remaining 40%. Coty will, however, continue to have full ownership of its mass beauty business in Brazil.

All in all, the sale of the majority stake in the hair and nail care brands represents a significant step forward for Coty as it aims to simplify its operations and reduce its debt burden. With the strong support of KKR’s substantial investment, Coty is determined to refocus its efforts on its core business and regain momentum within the highly competitive beauty industry.

Links:
CNBC: Coty to sell hair brands Wella, OPI to KKR for $3 billion
Investopedia: What Makes a Consumer Goods Company Successful? (Coty)