The Proctor & Gamble Company (NYSE/PG) is selling its beauty brands to the company that owns fragrance brands like Calvin Klein, Playboy, and Marc Jacobs in a continued effort to slim down its business.
Coty Inc. (NYSE/COTY), a Paris-based beauty products manufacturer, just won auctions to acquire P&G’s beauty business for $12.0 billion. (Source: Reuters, June 16, 2015.)
Shares of Coty surged on the news, closing 19.31% higher at $31.07 on Tuesday. P&G’s stock price increased a more moderate 1.25% for the day.
Coty already has a solid line of products, including Calvin Klein and Marc Jacobs fragrances. The deal would add some well-known brands to Coty. These brands include Gucci and Hugo Boss fragrances; Wella and Clairol hair products; and Max Factor and Cover Girl cosmetics.
The transaction is likely to take place using the “Reverse Morris Trust” structure. P&G would spin off its beauty business into a separate entity and absorb Coty. This way, P&G’s shareholders would be in control of the new company. The biggest benefit from the structure is that the deal would be tax-free for P&G shareholders.
Spinning off its beauty business is also in line with P&G’s strategy. The world’s largest consumer products company plans to focus on fewer brands that are fast growing. Last August, P&G said it would narrow its focus to 70 to 80 of its biggest brands and sell as many as 100 others whose performance has been lackluster. Last year, P&G sold Duracell to Warren Buffett’s Berkshire Hathaway Inc. (NYSE/BRK.A, BRK.B) for $4.7 billion.
The source also mentioned that due to the complexity of the deal, details of the transaction would take at least two weeks to be finalized. According to analysts, the deal is just one step in P&G’s ongoing effort to slim down its operations; therefore, we might see the consumer goods giant selling more of its brands in the future.