Coty Inc. has turned to private equity giant KKR for support in the coronavirus storm.
The beauty firm said KKR will start by buying $750 million in convertible preferred shares of Coty.
In addition to that, Coty is in talks to sell KKR the majority of its professional beauty and retail hair businesses — including the Wella, Clairol, OPI and GHD brands — at an enterprise value of $4.3 billion, or 12.3-times earnings before interest, taxes, deprecation and amortization last year. Coty is keeping a 40 percent stake in the businesses, which are collectively known as Wella and will operate on a stand-alone basis. Coty is also retaining ownership of its beauty business in Brazil.
Once done, the Wella deal is expected to leave Coty with $3 billion in cash proceeds. And once the transaction is complete, KKR plans to buy another $250 million in Coty convertible stock.
The deals will put Coty on much firmer ground. As of March 31, the firm had total debt of $9.4 billion and cash and cash equivalents of $1.3 billion.
Peter Harf, chairman of Coty, said KKR’s investment and partnership “will be instrumental to strengthening Coty’s balance sheet and helping the company to achieve long-term growth in shareholder value.”
Still, the company is also cutting back in the face of a difficult consumer climate with a plan to cut fixed costs by $700 million.
“Coty is a leader in the attractive global beauty market with iconic brands, global presence and scale, and a strong track record of innovation and growth,” said Johannes Huth, partner and head of KKR EMEA. “We are excited to form this partnership to invest in Coty to support it through this period of unprecedented global uncertainty and allow it to emerge as a stronger, more agile business and to acquire a majority stake in Wella, a market leader with a strong portfolio of brands in the attractive professional hair market where we see significant opportunities to accelerate growth in partnership with its experienced leadership team. We look forward to working toward the establishment of a lasting and value-creating strategic partnership.”
Pierre-André Terisse, chief operating officer and chief financial officer of Coty, added: “We will see immediate improvement to our balance sheet and are in the final stages of finalizing a 60/40 partnership for our professional beauty and retail hair businesses. In the shadow of a global lockdown, we have also announced a comprehensive plan to reduce fixed costs by $700 million, which allows us to confirm our target to reach mid-teens operating margins by FY23. Overall, this alliance and the steps we are taking to strengthen our businesses will be key elements of our transformation.”
Coty’s revenues fell 23 percent to $1.5 billion in the third quarter. Net losses tallied $271.6 million, or $61.7 million on an adjusted basis.
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