Clairol's Nice 'n Easy hair coloring

Coty Inc. is officially looking to get out of the professional beauty business.

The company has tapped Credit Suisse to explore options for its professional portfolio, including Wella, Clairol, OPI and Ghd. For Wella and Clairol, both professional and retail-based sides of the operations are on the table. Coty is also considering selling its Brazilian business, Hypermarcas, which it acquired in 2015.

All together, the businesses are expected to generate $2.7 billion in net sales for fiscal 2019. A report from The Financial Times said Monday that Coty expected to get between $8 billion and $9 billion in a deal. RBC analyst Nik Modi said that “a value closer to the bottom of that range is most likely.” Other industry sources expressed similar valuation sentiments, noting that while some parts of the portfolio have performed well, others — most notably Clairol — have not.

Coty’s professional segment also includes System Professional, Nioxin, Sassoon Professional, Sebastian Professional, Kadus Professional and Londa Professional. The division has been led by Sylvie Moreau as president since the brands were acquired from Procter & Gamble in 2016.

Industry sources said they expected the portfolio to generate both strategic and private equity interest, naming Kao and Henkel as potential suitors for the hair business.

“Wella is back on the table and that should increase the interest from previous candidates, L’Oréal, Henkel, Unilever and Beiersdorf,” wrote Oddo Securities equity research analyst Pierre Tegner in a research note.

In July, WWD reported that Coty was considering divestitures as part of its turnaround plan.

Coty plans to use proceeds from any sales to pay down debt and return cash to shareholders. As part of the current management team’s efforts to turn the business around, deleveraging has become a priority. The deal would also allow the business to focus on fragrance, cosmetics and skin care.

Pierre Laubies, Coty’s chief executive officer, said the decision will help accelerate the group’s transformation and “reposition Coty as a more focused and agile company” while helping to deleverage the balance sheet.

“After a thorough analysis, the management team and board reached the conclusion that even with its strong current performance, the future growth opportunities of the Professional Beauty business lie increasingly outside the company’s core strategic focus,” a Coty statement read.

“The board is highly confident in Coty’s ability to leverage our unique portfolio of fragrance, cosmetics and skin-care brands, and capture the growth of the beauty category,” said Peter Harf, chairman of the board and founder of Coty majority owner JAB, said in a statement.

The divestitures would further unravel the Coty that former ceo and chairman Bart Becht set out to build. Becht oversaw the P&G beauty acquisition, the deal for Hypermarcas, the purchase of Ghd and the deal for a majority stake in Younique, which is being sold back to that brand’s management team.

Wall Street analysts were split on whether the professional sale would be good or bad for business, though Coty’s stock surged up nearly 15 percent in mid-day trading after the news, to $11.64.

“We see this as bad news,” wrote Citi analyst Wendy Nicholson in a research note. “[The Professional Beauty Segment] has been a boost to Coty’s total company performance over the last couple of years, such that we’re disappointed in part to see if leave the portfolio.”

“While we do think there’s a lot to like about the Professional Beauty portfolio, given how much time/effort/money we think Coty needs to invest into its Consumer Beauty segment to rejuvenate it, we do appreciate the benefits of the reduced complexity that should arise from a streamlined portfolio at the company,” Nicholson continued.

“We support the decision as we believe new management is reducing complexity created by prior leadership while bringing down debt levels, which remain a key concern for investors,” Modi wrote in a note. “While the Professional business has performed well, it adds significant complexity to the business because there’s very little overlap with the rest of the business from a channel perspective [and it’s difficult to create scale selling into salons given there are few big chains]. The move would ultimately allow management to allocate more resources toward Consumer Beauty, which at this point is the biggest point of controversy.”

The consumer segment, home to Cover Girl and Rimmel, has been tough to turn around. For the latest fiscal year, the segment’s net sales were down 17.1 percent to $3.5 billion.

For more on Coty, see: 

P&G, Coty and Chanel Fined for Import Agreements in French Territories

Coty’s ‘Sensible’ Retail Plans

Coty Divests Younique Stake

WATCH: Scaling a Business With Jen Atkin

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