Coty sells Wella stake to KKR as virus ravages beauty business
KKR pays $3bn for 60% stake in business
New York — Coty is selling a majority stake in its hair and nail-care business to US buyout firm KKR for $3bn in cash, well below what it was valued before the coronavirus pandemic ravaged the beauty business.
The portfolio, including Wella and OPI, was valued at up to $7bn earlier in 2020, Reuters reported, before the virus outbreak forced hair salons about the world to shut and prompted consumers to buy more home dye kits.
Coty shares initially rose 15% on news of the deal on Monday, but then slid to trade down 5%.
The firm also laid out plans to cut costs by $700m, suspended its dividend and said KKR would invest $1bn in Coty through the sale of convertible preferred shares.
“Coty is clearly taking very aggressive actions to reduce its leverage and put the company in a better position for the long-run,” Wells Fargo analyst Joe Lachky wrote in a note.
Coty, which has been struggling with slowing sales and mounting debt, had put the brands on the block last October and seen interest from sector players such as Henkel and Unilever.
Henkel, which owns the Schwarzkopf hair care brand, had been hoping to boost its market share with Wella, but dropped out several weeks ago due to differences on price and the structure of a deal, a person familiar with the matter said.
Henkel declined to comment on Coty's deal with KKR.
Henkel said earlier on Monday it expected its beauty business to have a tough second quarter as many salons are still closed, after sales fell 3.9% in the first quarter.
Sales of US prestige beauty products fell 14% in the first quarter to $3.6bn, according to NPD Group, while online sales rose 24% in the same period, with hair products up 41%.
L'Oreal — the world's number one in salon hair care followed by John Paul Mitchell Systems and Coty, according to Euromonitor — said in April it was counting on consumers rushing back to salons once lockdowns are lifted.
But Henkel CEO Carsten Knobel noted the salons that are reopening are operating at lower capacity than before the crisis due to social distancing and hygiene rules, with consumers less willing to spend due to recession fears.
Coty reported a wider-than-expected loss and revenue down 23% for the three months ended March 31, including a 14% fall in its professional beauty division.
The company decided to put the portfolio up for sale after it struggled to integrate more than 40 brands it acquired from Procter & Gamble in 2016, forcing it to rethink its strategy.
Coty bought a majority stake in Kylie Jenner's make-up and skincare businesses in 2019, banking on Jenner's more than 270-million social media followers to attract a younger audience.
As part of the deal with KKR, the private equity firm will also get two seats on Coty's board.
As part of the transaction, KKR is buying $750m worth convertible preferred shares in Coty, while it will later buy another $250m of these securities.
New York-based Coty will continue to fully own its mass beauty business in Brazil, for which the company was exploring options.