By Serena Ng And Chelsey Dulaney
Procter & Gamble Co. is parting ways with much of its
beleaguered beauty business, as the maker of Tide, Pampers and
Gillette refocuses around its best-selling products.
The consumer products giant said Thursday that it would combine
43 of its beauty brands with Coty Inc. in a $13 billion deal
complicated by the need to avoid a big tax bill on an outright
sale.
The deal's final price and form haven't been settled, but it
will probably involve splitting off brands including Wella shampoo,
Clairol hair dyes, Covergirl makeup and Hugo Boss perfume into a
separate company that will merge with Coty, a New York-based beauty
company that owns a number of cosmetics and perfume brands,
including Rimmel cosmetics, Sally Hansen nail polishes and Calvin
Klein fragrances.
The exit represents the single-largest divestiture of assets in
P&G's history and comes after the earlier sale of the Duracell
battery brand to Warren Buffett's Berkshire Hathaway Inc. as well
as a number of smaller sales around the world.
It is also a reversal for Chief Executive A.G. Lafley, who built
up the company's beauty business aggressively during his first turn
at the helm before returning two years ago with a mandate to boost
the company's sluggish growth. His strategy has been to cut dozens
of brands to focus resources on the sprawling company's best
products and markets.
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 Chief Financial Officer Jon Moeller said on a call with
investors Thursday that the deal essentially completes the
reshaping of the company's portfolio. He said P&G isn't
entirely exiting beauty and will focus on growing its remaining
hair, skin and personal care brands, which include Pantene shampoo,
Olay facial moisturizers and SK-II cosmetics.
P&G said it is aiming to return up to $70 billion to
shareholders via dividends and share buybacks in the next four
years as it completes the divestments of the beauty brands and
Duracell. P&G expects to book a one-time gain of $5 billion to
$7 billion on the sale.
The beauty brands P&G is parting with have annual sales of
$5.9 billion--larger than Coty, which reported $4.6 billion in
sales in its last fiscal year, which ended June 2013.
The deal may not be completed until the second half of next
year, P&G said. The company hopes to use a structure known as a
Reverse Morris Trust that will avoid triggering a large tax bill
for the company and its shareholders. That structure would allow
P&G shareholders to exchange their shares for Coty shares or
for shares in a new merged entity that will own the beauty brands
of both firms.
Following the deal, P&G shareholders is expected to own 52%
of the shares outstanding, while Coty's existing shareholders would
have 48% of the combined company.
P&G is an active user of the structure, using it to dispose
of brands including Crisco shortening, Pringles chips and Folgers
coffee in recent years.
P&G has spent months looking for a buyer for chunks of its
beauty business, which has lagged behind its other divisions
selling more mundane household goods like dish soap and disposable
diapers. The deal announced Thursday takes the number of brands for
which P&G has mapped out exits to more than 90.
The culling is aimed at accelerating P&G's revenue growth,
something it has struggled with for years. The sprawling beauty
business in particular has been a laggard despite profit margins
that can run higher than those for household products like toilet
paper and dish soap. Its sales recently have been the worst of
P&G's five main business lines.
In the first three months of 2015, sales from P&G's beauty,
hair and personal care products declined 11% and were the only
division to post a drop excluding currency effects.
P&G's shares gained about 0.6% in morning trading, while
Coty fell 6.2%.
Write to Serena Ng at serena.ng@wsj.com and Chelsey Dulaney at
Chelsey.Dulaney@wsj.com
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