Coty Agrees to Buy P&G Beauty Brands for $12.5 Billion

Beauty products maker Coty is buying 43 beauty brands from Procter & Gamble Co., including Miss Clairol, Covergirl and Max Factor. The deal includes its global salon professional hair care and color, retail hair color, cosmetics, select hair styling brands, and fine fragrance businesses.

Reuters first reported in June that Coty was on track to acquire P&G’s brands in a $12 billion deal.

The acquisition meets Coty’s goal of adding a wider range of products to its fragrance and cosmetics offerings.

The sale is part of a long-running effort at Procter & Gamble to shed some of its dozens of brands and focus on those where it is strongest.

Procter & Gamble estimated that the value of the transaction was around $15 billion based on Coty’s current stock price, outstanding shares, and equity grants.

Coty has been acquisitive in recent years, snapping up nail-polish company OPI Products and skincare-products brand Philosophy in 2010 for about $1 billion each, among other deals. The companies expect the deal to be completed in the second half of 2016.

Last summer, the CEO said the company would exit as many as 100 brands to focus on what P&G now says will be a portfolio of 65 market-leading brands that generate almost all of the company’s revenue and profit.

P&G said that the form of a final deal had not yet been reached, but it is possible that P&G will split off a separate company that includes these 43 beauty brands, and then Coty would merge with that company.

“With the Beauty talent from both sides and the fantastic portfolio of world-class brands, we have the opportunity to create a highly focused, pure-play leader and challenger in Beauty which can deliver exciting opportunities and benefits for employees, licensors, customers and suppliers”, said Coty chief executive Bart Becht.

For some background: a Reverse Morris Trust (RMT), a spin-off-and-sale move, is named for a 1964 IRS lawsuit and combines a tax-free spin-off to shareholders with a prearranged merger. In a year ago alone it sold pet food brand Iams, Duracell batteries and its soap brands.

The outlines of the deal are similar to the way P&G spun off Folgers coffee to J.M. Smucker Co.in 2012 as well as Jif peanut butter and Crisco shortening to Smucker’s in 2002. Parting with these beauty brands really seems like a natural progression for P&G. The deal helps P&G avoid a massive tax bill as it refocuses it beauty business.