Procter & Gamble announced that is merging 43 of its beauty brands with Coty Inc. in a Reverse Morris Trust transaction worth around $12.5 billion.
In total the cosmetics, hair coloring and fragrance brands being sold command $5.9 billion in combined annual sales.
The transaction involves the separation of the P&G Beauty Business from P&G, followed by a merger of the P&G Beauty Business with a subsidiary of Coty.
P&G said that the deal will result in a gain of between $5 billion to $7 billion.
In addition to the divestiture of brands, P&G will transfer ownership of nine distribution centers and eight factories.
Under the terms of the agreement, P&G shareholders will receive 52 percent of the company while Coty shareholders will own 48 percent.
Brands that are part of the deal include Covergirl, Max Factor, Miss Cairol, Sebastian Professional, Sasson Profesional, Natural Instincts, Nice & Easy, and Wella Professionals.
P&G Chairman, President and Chief Executive Officer, AG Lafley, commented:
“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. 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 ten categories to grow and create value as we focus the energy and resources of the company exclusively on them.”
He concluded:
“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.”
The transaction is set to position Coty, maker of Calvin Klein and Chloe perfume, as one of the biggest beauty products companies – potentially more than doubling sales.
Coty expects to produce around $4.5 billion in annual sales from its perfume business and become, with Covergirl and Max Factor, the third biggest cosmetics and color company after L’Oreal and Estee Lauder.
According to a statement by Coty Inc, it anticipates “approximately $550 million in total cost savings on an annualized basis over the next three years,” including “$400 million in non-transferred costs and an incremental $150 million in additional cost synergies, equating to 10% of the acquired revenues.”
Coty Inc. is being advised by Morgan Stanley, Barclays, JP Morgan and BofA Merrill, while Goldman Sachs is advising P&G.
Approximately 10,000 workers worldwide will be affected by the merger, including about 1,500 in the U.S.