Procter & Gamble Co (NYSE:PG) is dropping out of the beauty business. The company announced it is parting ways with many of its beauty products. It will sell nearly four-dozen brands to Coty Inc. (NYSE:COTY) as it returns its attention to its more best selling products, such as Gillette, Head and Shoulders, Pampers and Tide.
Proctor & Gamble Exits the Beauty Industry
Procter & Gamble will transfer 43 of its beauty brands to Coty in an estimated $13 billion deal. This will see the consumer products juggernaut no longer be involved with Covergirl, Max Factor and Miss Clairol. It’s believed the deal will be hindered somewhat because P&G needs to refrain from receiving an enormous tax bill from Uncle Sam following the sale.
The final price and details of the arrangement haven’t been agreed upon yet. Experts say it will likely consist of P&G coalescing hair care, styling and color, cosmetics and fragrance brands.
The merger with Coty, a strategic acquirer, will provide an excellent new home for these businesses and brands, as well as for the talented people who are operating them. We look forward to a successful transition and we will work together to maximize value for the shareholders of both companies,” said AG Lafley, P&G Chairman, President and CEO, in a statement.
The deal has been expected for months. In August, the Cincinnati, Ohio-based P&G said it was considering cutting back on its amount of brands. Also, there were reports last month that Coty was looking to acquire several brands from the consumer products giant.
P&G, which will now have a portfolio of 65 “market-leading brands,” projects a one-time gain of between $5 and $7 billion. Coty expects a one-time cost savings of $500 million in addition to annual cost savings of $550 million over the next three years
P&G shareholders would garner 52 percent of remaining stock in the combined company, and Coty shareholders would receive 48 percent.
The transaction is scheduled to be complete sometime in the second half of 2016. This could see Coty increase its annual dividend to 50 cents per share.
Market Reacts to Sale
Citigroup’s Wendy Nicholson and her team are reportedly pleased with this deal. Here is what they wrote in a note to investors:
Procter & Gamble still holds (and intends to keep) sizeable businesses in hair care (mostly shampoo and conditioners), skin care (mostly lotions and creams) and personal care (mostly deodorants, soaps and body washes). Procter & Gamble intends to substantially offset any dilution from the transaction by buying back shares and paying dividends of up to $70 bn over the next four years.”
The financial analysts did posit, however, that there are some concerns, including the intricacies of the deal and the amount of time, money and work it’ll be for Coty to find the benefits.
P&G shares were relatively unchanged during the Thursday trading session as it is trading in the $81 territory. Year-to-date, the P&G stock has tumbled more than 10 percent. Coty shares, meanwhile, slipped four percent in the Thursday trading session. Year-to-date, it jumped close to 10 percent.