Procter & Gamble (PG) Begins P&G Specialty Beauty Brands Exchange Offer with Coty (COTY)

September 1, 2016 11:55 AM EDT

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The Procter & Gamble Company (NYSE: PG) announced the commencement of an exchange offer for the separation of its global fine fragrances, salon professional, cosmetics and retail hair color businesses, along with select hair styling brands (collectively referred to as “P&G Specialty Beauty Brands”).

This represents the next step in the proposed tax-efficient Reverse Morris Trust transaction with Coty Inc. (NYSE: COTY) announced on July 9, 2015. In the proposed split-off transaction, P&G will transfer the assets and liabilities of P&G Specialty Beauty Brands, other than specified excluded brands, to Galleria Co., a wholly owned subsidiary of P&G created to facilitate the transaction. Following completion of the exchange offer, Galleria Co. will merge with a wholly owned subsidiary of Coty and become a wholly owned subsidiary of Coty.

The exchange offer provides P&G shareholders with the opportunity to exchange their shares of P&G common stock for shares of Galleria Co. common stock, which will convert into shares of Coty class A common stock upon completion of the merger. The exchange and the merger are expected to be tax-free to participating P&G shareholders for U.S. federal income tax purposes.

The exchange offer includes several key elements:

  • P&G is offering to exchange shares of Galleria Co. common stock for shares of P&G common stock that are validly tendered and not properly withdrawn. Procedures regarding how to tender and withdraw shares will be specified in the exchange offer materials distributed to P&G shareholders.
  • P&G shareholders have the opportunity to exchange all, some or none of their shares of P&G common stock for shares of Galleria Co. common stock, subject to proration if the exchange offer is oversubscribed. Each share of Galleria Co. common stock will automatically convert into the right to receive one share of Coty class A common stock upon completion of the merger, which is expected to occur as promptly as practicable following completion of the exchange offer.
  • Tendering P&G shareholders are expected to receive approximately $1.075 of Galleria Co. common stock for every $1.00 of P&G common stock tendered and accepted in the exchange offer, subject to an upper limit described below.
  • P&G expects to issue 409,726,299 shares of Galleria Co. common stock in the exchange offer. The number of shares of P&G common stock that will be accepted in the exchange offer will depend on the final exchange ratio and the number of shares of P&G common stock tendered and not properly withdrawn.
  • The exchange offer and withdrawal rights will expire at 12:00 midnight, Eastern Daylight (New York City) Time, on September 29, 2016, unless extended or terminated.
  • Galleria Co. common stock will not be delivered to participants in the exchange offer. Participants will instead receive shares of Coty class A common stock in connection with the merger. No trading market currently exists or will ever exist for shares of Galleria Co. common stock.

The exchange offer is designed to permit P&G shareholders to exchange their shares of P&G common stock for shares of Galleria Co. common stock at a discount of 7.0 percent, with the price of Galleria Co. common stock established by P&G as described below, subject to an upper limit of 3.9033 shares of Galleria Co. common stock per share of P&G common stock. P&G will determine the prices at which shares of P&G common stock and shares of Galleria Co. common stock will be exchanged by reference to the simple arithmetic average of the daily volume-weighted average prices of shares of P&G common stock and shares of Coty class A common stock on the New York Stock Exchange during a period of three consecutive trading days ending on and including the second clear trading day preceding the last day of the exchange offer.

The final exchange ratio showing the number of shares of Galleria Co. common stock (which will immediately be converted, on a one for one basis, into the right to receive shares of Coty class A common stock) that P&G shareholders participating in the exchange offer will receive for each share of P&G common stock accepted for exchange will be announced at www.dfking.com/pg and separately by press release no later than 9:00 a.m., Eastern Daylight (New York City) Time, on the trading day immediately preceding the expiration date. P&G will also announce at that time whether the upper limit on the number of shares of Galleria Co. common stock that can be received for each share of P&G common stock tendered is in effect.

The exchange offer will be subject to proration if the exchange offer is oversubscribed, and the number of shares of P&G common stock accepted in the exchange offer may be fewer than the number of shares tendered. If the exchange offer is consummated but not fully subscribed, P&G will distribute all of the shares of Galleria Co. common stock it continues to own as a pro rata dividend to all P&G shareholders whose shares of P&G common stock remain outstanding and have not been accepted for exchange in the exchange offer.

As promptly as practicable following completion of the exchange offer and, if necessary, the pro rata dividend, a wholly owned subsidiary of Coty will merge with and into Galleria Co., with Galleria Co. surviving the merger and becoming a wholly owned subsidiary of Coty. The transactions are subject to customary closing conditions, including a minimum tender condition. As a result of the exchange offer, the number of outstanding shares of P&G common stock will be reduced.

Prior to the merger, JAB Cosmetics B.V., the holder of all outstanding shares of Coty class B common stock, will convert its shares of Coty class B common stock into shares of Coty class A common stock, after which the class A common stock will be Coty’s only class of common stock outstanding. Following this conversion and the merger, the shares of Coty class A common stock issued in the merger are expected to represent approximately 55 percent of the shares of Coty common stock that will be outstanding after the merger.

For more information about the proposed transaction, please visit the website that P&G will maintain for the exchange offer at www.dfking.com/pg. For more information about the exchange offer, please contact the information agent, D.F. King & Co., Inc., at +1 (212) 269-5550 (for banks and brokers) and +1 (877) 297-1747 (for all other callers).

Goldman, Sachs & Co. is acting as financial advisor to P&G in connection with the merger.



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