Procter & Gamble sells 43 beauty brands for $12.5b

Brands including Clairol and Max Factor will move from Procter & Gamble to Coty.

CINCINNATI: Procter and Gamble has agreed to sell 43 hair and beauty brands to beauty giant Coty for $12.5 billion.

Coty’s portfolio of mainstream brands includes Calvin Klein, Balenciaga, and Davidoff fragrances, as well as cosmetics such as Rimmel London and Astor.

With the P&G deal, Coty will gain control over Wella, Clairol, and Max Factor, as well as Hugo Boss and Dolce & Gabbana fragrances, among others.

The deal will likely place Coty among the top beauty players globally, with the firm winning the P&G bid against Henkel and Revlon.  

P&G will merge the 43 brands into Coty through a complex deal referred to as a "Reverse Morris Trust" structure, in which the CPG company will spin off the operations into a new entity. P&G’s shareholders will own a majority stake in the new organization.

The new company is expected to make about $10 billion in revenue, and will be led by Coty CEO Bart Becht.

Depending on the eventual value of the transaction, P&G estimates a one-off gain of $5 billion to $7 billion from the deal.

The deal could mark the end of P&G's brand cull, after the firm began axing its 100 least profitable brands from last year.

More marketing spend on big brands
The deal is not expected to close until the end of next year, meaning neither firm is likely to reveal strategic plans for the new entity.

There are, however, clues in Coty’s most recent financial report for fiscal third quarter 2015.  

Speaking to analysts in May, Becht and Coty legal chief Jules Kaufman said the firm will cut spending on underperforming brands and divert that money to "power brands."

Kaufman particularly identified celebrity fragrances as a "phenomenon which is dying out," while Coty's power brands comprise the Sally Hansen nail polish brand, Rimmel, Chloe, and Marc Jacobs. Coty has said it spent $1.1 billion on ads and $1.5 billion on marketing globally in 2014.

"We need to increasingly focus [on] reinvesting some of the monies that we're saving into the business, and in particular, in the power brands," Kaufman said. "The drag will continue on the bottom end of the portfolio, but we need to accelerate the growth at the top end."

Becht particularly identified advertising an area of cost savings from lesser brands.

"If you look at what has happened on a year-to-date basis to our advertising and promotional budget, you will see that in terms of absolute spend, there is not a lot changed," he said. "However, in terms of allocation, it substantially changed. So, we have substantially increased already the working media budget on our power brands."

This story originally appeared on Marketing.

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