Coty, Inc. (COTY) Updates on P&G Beauty Brands Deal; Boosts Cost Savings Outlook
Coty Inc. (“Coty”) (NYSE: COTY) announced an update on its transaction with The Procter & Gamble Company (“P&G”), which is expected to close in October 2016.
On July 9, 2015, Coty announced that it had entered into a definitive agreement to acquire P&G’s Fragrance, Color Cosmetics and Hair Color Business (“P&G Beauty Brands”) through a Reverse Morris Trust structure. The transaction will create one of the world’s largest beauty companies, with pro forma combined annual revenues of more than $9 billion based on fiscal 2015 performance, strengthening Coty’s leadership position in the global beauty industry. Following the transaction with P&G Beauty Brands, Coty is expected to become the global leader in fragrances with market leading positions in color cosmetics and hair coloring & styling. P&G Beauty Brands includes leading fragrance brands such as Hugo Boss and Gucci, and the color cosmetics brands COVERGIRL and Max Factor. The transaction also gives Coty an attractive new category in the beauty industry through the addition of P&G’s hair color business, led by Wella and Clairol.
Post-integration, the merger is expected to create a strong platform for future growth, with anticipated meaningful EPS accretion from unlocking expected cost synergies:
- Estimated cost savings have been increased to approximately $780 million annually, or 16% of acquired revenues, after the next four years, a very substantial increase from the estimate provided in July 2015
- The P&G Beauty Brands, supported by the total expected synergies, is expected to add approximately 600 bps to the Coty stand-alone operating profit margins over a 4-year period, which is projected to make Coty an industry leader
- Estimated to increase Coty’s fiscal 2015 adjusted earnings per share, excluding the impact of amortization, by approximately $0.49 to $0.54
- To realize the cost synergies and close the transaction, the Company is anticipating to incur one-off costs of approximately $1.2 billion over the next four years
- Following the close of the transaction, the annual dividend is expected to increase to $0.50 per share
Bart Becht, Chairman and Interim CEO of Coty, commented: “We continue to make strong progress on the P&G transaction which we expect will make Coty a global leader and challenger in the Beauty Industry. We now expect the transaction to close in October 2016. We’ve also substantially increased our estimates for cost synergies compared to when we announced the transaction, significantly improving the outlook for Coty’s adjusted operating margin and adjusted earnings per share, excluding amortization.”
Conference Call
Coty Inc. will host a conference call at 8:00 a.m. (ET) today, May 3, 2016 to discuss its results and provide an update on the P&G Beauty Brands transaction. The dial-in number for the call is (855) 889-8783 in the U.S. or (720) 634-2929 internationally (conference passcode number: 4003430). The call will also be webcast live at http://investors.coty.com. The conference call will be available for replay. The replay dial-in number is (855) 859-2056 in the U.S. or (404) 537-3406 outside the U.S. (conference passcode number: 4003430).