Coty Inc. is making changes to its succession plan, in a move that may signal the firm is getting closer to acquiring parts of Procter & Gamble Co.’s beauty business.
In a surprise development, Coty revealed Tuesday that Elio Leoni Sceti, who was due to take over the ceo post on July 1, will no longer be joining the company. Bart Becht will remain interim chief executive officer and chairman.
With Becht still in the driver seat, Coty may have the operational expertise it would need to handle a potential acquisition as seismic as the Procter & Gamble brands could bring.
Coty’s abrupt change in management plans comes one week after the firm reportedly won the auction for a $12 billon deal for three parts of P&G’s beauty business, namely CoverGirl and Max Factor brands, along with Wella and fragrances, which includes Hugo Boss, Gucci and Dolce & Gabbana. If a deal does take place, the addition of the P&G brands, which several analysts have estimated generate $5 billion in sales, would more than double Coty’s current revenue, transforming it into a $9.49 billion company.
Wall Street is quick to praise Becht, who they say proved his operational skills during his 16 years as ceo of Reckitt Benckiser. As ceo of Reckitt Benckiser, Becht oversaw the integration of Reckitt & Coleman with Benckiser and created high-growth enterprise. Should Coty acquire the P&G brands, he’ll be at the helm to combine two large beauty businesses, and potentially catapult Coty’s standing and performance in the industry, said several analysts.
“Any day that Bart is running the company is a good one,” Stifel analyst Mark Astrachan told WWD. He added his continuing role as interim ceo “means there still more work to do [at Coty].”
Astrachan wrote in a research note on Tuesday, “The board has decided that a change in leadership is not in the best interest of the company at this time, preferring to keep Mr. Becht as leader in order to continue implementing the revenue growth and cost savings strategies Coty currently has in place. We believe the decision relates in part to company fundamentals remaining challenged and believe Mr. Becht staying on as ceo gives the company the chance to improve results as he did during his tenure at Reckitt Benckiser.” He added that Leoni Sceti may have been offered another position at Coty, but declined the offer. When asked if that was the case, a Coty spokesman said, “no comment.”
Coty stated it was Leoni Sceti’s decision not to join the company. Peter Harf, director and chairman of the Remuneration and Nomination Committee of Coty, stated, “The Coty board of directors determined that leadership continuity is critical in ensuring the continued success of Coty’s strategy implementation. We certainly understand Elio’s decision not to join Coty as planned, thank him for his professionalism throughout this process and we wish him all the best in his future endeavors.”
Coty stated in a regulatory filing that it has entered into a dissolution agreement with Leoni Sceti, in which Coty will pay him $1.75 million in severance and repurchase his preferred stock for approximately $55,000.
The dissolution agreement also provides that, in accordance with the terms of the employment agreement, Leoni Sceti will be subject to a 12-month noncompetition and 24-month nonsolicitation period with the company.
In recent years, Coty has made several swift ceo switches. The most eyebrow-raising came in 2012, when Bernd Beetz left the ceo post several months after Coty dropped its takeover bid for Avon Products Inc. and it was gearing up for an initial public offering. Beetz, credited as the architect of Coty’s business strategy at that time, departed and was succeeded by Michele Scannavini, who was formerly president of Coty Prestige and largely considered Beetz’s right-hand man. Beetz departure delayed the IPO, pushing it into 2013, said financial sources. In fall 2014, Scannavini departed with Becht stepping into the interim ceo role — the change occurred two weeks before Coty struck a deal with Chanel to acquire the Bourjois brand.
Becht seems to be at the center of large-scale change at Coty, and that’s how many Wall Street analysts prefer it.
ConsumerEdge Research analyst Javier Escalante wrote in research note on Tuesday, “While Mr. Becht doesn’t have experience in the beauty industry, his track record building Reckitt Benckiser provides assurance of strategic thinking and leadership. We welcome this news, as we thought that Mr. Leoni Sceti didn’t bring much to the table beside a working relationship with chairman Becht.”
Escalante has previously questioned if Coty’s management team is equipped to tackle such a transformational acquisition as the P&G brands would bring. On Tuesday, he wrote that keeping Becht in charge indicates “That Coty’s ‘thin’ and ad-hoc management team indeed represents an issue as we have pointed out from the get-go. Coty has churned ceos in the past two years [Mr. Beetz and Mr. Scannavini] and as a result, it doesn’t have management of the caliber to run a business that will potentially be twice as large. Operationally, Coty’s record since the IPO has been lackluster with like-for-like sales averaging flat and downward earnings revisions right up to last quarter, when savings were ‘identified’ and accrued.”
Among people with close knowledge of the business, opinions are mixed. “He is a fabulous leader,” said one source of Becht. “He has had an enormous impact on this company in the last six-to-nine months.”
However, at least one source sounds highly critical, pointing to a lackluster top line, an empty product pipeline and a talent drain. He maintained that Leoni Sceti “is very smart” and decided to leave on his own.
During Becht’s watch, a number of key Coty executives have departed, including Renato Semerari, former president of the company’s categories and innovation department, Catherine Walsh, former chief communications officer, and Steve Mormoris, former chief marketing office, fragrances.