Coty to merge P&G’s Beauty Business with itself

French beauty product manufacturer Coty will merge The Procter & Gamble Company’s fine fragrance, color cosmetics, and hair color businesses, P&G Beauty Business, valued at $12.5b with itself through a tax-free Reverse Morris Trust transaction.

Post-transaction, P&G shareholders will have 52% of all outstanding shares on a fully diluted basis, while Coty’s existing shareholders will grab 48% stake of the combined entity. Morgan Stanley & Co is discharging the responsibilities of lead financial advisor to Coty.

With this, the cosmetics behemoth will emerge with pro forma combined annual revenues worth more than $10bn as per the performance put up in 2014, consolidating its position in $300bn global beauty industry.

Coty chairman and interim CEO Bart Becht said: "There is no question that with the broader offering of leading brands, strong brand support, the development of a better pipeline of innovative products and the much broader geographical reach and scale, Coty will strengthen its competitive position and ability to capitalize on revenue and profit growth opportunities over time.

"Additionally, our combined operational and financial platform will allow us to drive meaningful EPS accretion and generate substantial incremental free cash flow over the long term, giving us a strong balance sheet with a conservative leverage profile."

Besides, the deal will lead to Coty’s expansion in Brazil and Japan, along with North America, Europe, the Middle East and Asia.

Coty eyes realizing around $550m in total cost savings on an annualized basis in the next three years, which would include $400m in terms of non-transferred costs and an incremental $150m as regards additional cost synergies.

Coty also pictures incurring one-time costs of approximately $500m related to the transaction, along with additional $400m of capital expenditures, in the next three years. After the transaction, the company will also assume $2.9bn of debt of the P&G Beauty Business.