PARIS — The Wertheimers of Chanel have a new relationship with another low-profile billionaire family — the Reimanns of Germany.
In a deal that surprised many observers, Coty Inc. on Tuesday said it planned to acquire the masstige makeup brand Bourjois from Chanel in an all-share deal worth about $239 million.
The agreement not only focuses Chanel Inc. on what it knows best — pure luxury — but also gives the French luxury house a 4.2 percent stake in Coty.
Now everyone is puzzling what Chanel plans to do with the holding.
“I am not surprised that Coty [might make] an acquisition, as it’s always on the hunt for deals. I was surprised that Chanel is a seller, but with investment into Coty through stock they now can ride the upside on the whole company — [and] that may have been a key consideration,” said the industry source.
Another source noted that while it is atypical that Chanel would make a deal for shares, it doesn’t need the cash. The company has historically been acquisitive through its Paraffection affiliate on the specialty manufacturer front in fashion. In 2012, it purchased Scottish cashmere specialist Barrie Knitwear, for instance.
Chanel — whose signature prestige beauty brand has such iconic fragrances as Chanel No.5 and Allure, plus makeup and skin-care items like Sublimage and Perfection Lumière — has no other masstige holding beside Bourjois.
“[The deal also] adds a high-profile shareholder to the stock and highlights Coty’s ability to source deals,” continued the industry source.
Karine Ohana, a partner at Ohana & Co., welcomed the heightened proximity of the Reimann family behind Coty to the Wertheimer family, which has a controlling stake in Chanel, in the possible transaction.
“They are two family-owned companies and two prestigious families from the luxury sector,” she said. “That is where I find the cultural link between those two companies. Family-owned companies understand each other because they have very long-term views.”
“We also point out that because Chanel will have ownership in Coty shares, Coty should benefit from increased collaboration with the prestige company,” said John Faucher, an analyst at J.P. Morgan, in a research note.
That said, if the deal goes through, Chanel executives would not have representation on Coty’s board, according to a company spokeswoman.
Coty has seen its fair share of challenges of late — including somewhat of a revolving door at the chief executive officer level — but despite its recent rocky ride, the stock market gave its approval to the Bourjois deal on Tuesday. Coty’s shares closed up 2.3 percent Tuesday on the New York Stock Exchange to $16.30.
Earlier in the day, the company said it had submitted a binding offer to acquire Bourjois from Chanel for 15 million Class A shares.
“We think this deal makes sense strategically and expect Coty to be able to integrate this brand into its existing manufacturing base,” said Faucher.
Bourjois products are sold in about 23,000 sales points in more than 50 countries globally. The brand was launched in 1863 by French actor Joseph-Albert Ponsin.
“I think this brand fits well into Coty’s color portfolio and geographic footprint,” said an industry source. The company’s other mass brands include N.Y.C. New York Color, OPI and Sally Hansen.
“Given the similarity between the Bourjois and Rimmel offerings, both in terms of products and distribution channel, we think the company can extract some synergies as it integrates this brand,” said Faucher, referring to another Coty-owned color-cosmetics label.
In its most recent fiscal year ended June 30, Coty’s sales fell 2.1 percent to $4.55 billion, mainly due to the pressure on its nail business, particularly in the U.S. The company noted a softness in its core fragrance and color-cosmetics segments, especially in the mass channel.
Color cosmetics generated about 30 percent of Coty’s sales and of that division, nail care rang up about 47 percent, Faucher highlighted.
Citing Euromonitor International data, he said Coty holds a small share in the global makeup category with about 4.1 percent in 2013 versus 20 percent for L’Oréal and 8.7 percent for the Estée Lauder Cos. Inc. With the acquisition of Bourjois, whose annual sales he estimated at more than $200 million, Coty would strengthen its makeup presence, particularly in Western Europe.
The Bourjois deal followed news of the exit early last week of ceo Michele Scannavini, a 12-year veteran of the company. Bart Becht, Coty Inc. chairman, has taken over as interim ceo until a successor is found. Scannavini, who previously was president of the Coty Prestige division, had stepped into the top post in July 2012 following the departure of longtime Coty ceo Bernd Beetz.
Still, having Chanel as a shareholder is seen as some positive news. “We are looking forward to having the Bourjois brand as part of our portfolio of leading beauty products, as well as welcoming Chanel as a Coty shareholder,” said Becht. “Bourjois’ brands are highly complementary to Coty’s existing color-cosmetics portfolio. Additionally, the company’s strong heritage, quality image and leadership positions in a number of Western European countries where Coty is seeking to bolster its presence provide a great opportunity for Coty to further strengthen its leadership position in the large and growing color-cosmetics category.”
Michael Rena, Chanel’s representative, stated: “We intend to examine the offer in more detail and enter constructive talks with Coty.”
No Chanel or Coty executives could be reached for further comment.
The Bourjois acquisition is subject to closing conditions, including regulatory clearances.
Meanwhile, Coty is not expected to stop looking for merger-and-acquisition opportunities, despite Scannavini’s departure.
“In fact, with Bart Becht acting as an interim ceo, we would not be surprised if more deals are coming,” wrote Faucher.
A Coty spokeswoman had no comment on whether the company is progressing on naming a new ceo.