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Beauty Brands Sale: Strategic Benefits for Coty and Hypermarcas

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Nov. 20 2020, Updated 12:05 p.m. ET

About Hypermarcas

Hypermarcas (HYPMY) is Brazil’s largest pharmaceutical company, with an estimated market share of 14% in terms of unit sales. The company is the number one player in Brazil in over-the-counter drugs, branded generics, and nutritionals, among others.

Hypermarcas’s consumer division accounted for 45% of the company’s sales in the trailing-12-month period through June 2015. Hypermarcas had an estimated market share of 9.9% in its consumer portfolio as of the second quarter of 2015, up from 8.3% as of 1H13.[1. Nielsen Retail Index]

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Strategic business sense

The Hypermarcas beauty brands sold to Coty (COTY) account for about 20% of Hypermarcas’s total sales. Hypermarcas plans to use the proceeds from the sale to pay down debt and focus on its core pharmaceutical business as a strategic priority. Moody’s (MCO) has already issued a credit-positive report for the sale transaction to Coty, as it will improve the company’s leverage ratios.

According to Coty’s vision for 2020, the company will explore both organic and inorganic routes to gain global scale. With the merger of the company with Procter & Gamble’s (PG) beauty brands as described in Part Two of this series, Coty would take the number one spot in fragrances and the number three spot in color cosmetics and beauty products globally.

The deal to purchase Hypermarcas’s beauty brands for $1 billion as announced on November 2, 2015, gives Coty a valuable stepping stone into the Brazilian market, the world’s third-largest market for beauty and personal care products. The Hypermarcas purchase is also expected to close before the P&G deal, giving the company time to integrate the two platforms.

The next article discusses why Coty’s so keen on expanding in Brazil, taking both the organic and inorganic routes.

Coty makes up 0.94% and 0.14% of the portfolio holdings in the First Trust US IPO Index ETF (FPX) and the PowerShares Buyback Achievers ETF (PKW), respectively.

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