Procter & Gamble Divestitures: Is 43-Brand Coty Deal the Last?


Nov. 20 2020, Updated 3:05 p.m. ET

Procter & Gamble announces agreement to merge beauty brands with Coty

On July 9, Procter & Gamble, or P&G (PG), and Coty (COTY) announced a definitive agreement to merge 43 P&G beauty brands with Coty in a Reverse Morris Trust deal. Coty offered $12.5 billion for the 43 brands.

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Is P&G done with divestitures?

P&G also announced that with the Coty sale, it has “substantially completed” the portfolio trimming strategy that it announced last year.[2. As per comments provided by Jon Moeller, P&G CFO, during a conference call] The brand divestitures, numbering ~93 out of a possible 100, according to last year’s announcement, will enable P&G to focus on its core portfolio where it’s more market dominant, particularly on its faster-growing brands and businesses.

Coty joins the big leagues

The deal’s an important one for Coty. It will more than double the company’s annual sales to $10.5 billion from $4.6 billion in fiscal 2014.[1. Year ending June 30, 2014] In the process, Coty will move ahead of global rivals, including US-based Avon Products (AVP), Britain’s Unilever (UL) (UN), Japan’s Shiseido (SSDOY), and Germany’s Beiersdorf (BEI.DE) (BDRFY) in terms of beauty sales.[2. Company financials, Euromonitor International, and Nielsen data and estimates]

Here are a few other advantages the deal brings Coty:

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  • The deal catapults Coty to the world number three position in beauty products, almost equal with Estée Lauder (EL).
  • Coty becomes the number one player in fragrances, overtaking France’s L’Oréal (LRLCY) (OR.PA).
  • Coty rises to the third spot worldwide in color cosmetics, behind L’Oréal and Estée Lauder.

Series structure

In this series, we’ll analyze the impact of the deal on the financials of both P&G and Coty. We’ll also analyze the deal structure, the tax impact, and what the deal means to their respective shareholders. And most importantly, we’ll look at the market reaction to the transaction and its impact on PG and COTY.

PG is a consumer staples stock. It’s the top holding in the Consumer Staples Select Sector SPDR Fund (XLP), with 12.4% weight.


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