Coty Inc. announced a strategic partnership with global investment firm KKR which will provide the company with an initial investment of $750 million through the sale of convertible preferred shares to KKR.
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Additionally, Coty and KKR signed a Memorandum of Understanding (“MOU”) for the sale of a majority in Coty’s Professional Beauty and Retail Hair Businesses including the Wella, Clairol, OPI and ghd brands at a contemplated enterprise value of $4.3 billion, or 12.3x 2019 EBITDA. Coty also announced its financial results for the third quarter of fiscal year 2020, ended 31st March, 2020, including comprehensive plans to reduce fixed costs by $700 million.
Under the terms of the MOU, Coty will carve out Wella into a standalone company in which KKR will acquire a 60 percent stake and Coty will retain the remaining 40 percent interest. The contemplated majority divestment of Wella would result in Coty receiving additional cash proceeds of approximately $3 billion.
On signing of the Wella transaction, KKR will also make an incremental convertible preferred investment of $250 million in Coty. Together with the initial $750 million investment, these transactions will result in significant deleveraging of Coty’s balance sheet and position the company for long-term growth and investment in its core portfolio. Coty’s mass beauty business in Brazil will remain a fully owned business of Coty.
Peter Harf, Founding Partner of JAB and Chairman of Coty, commented: “We are thrilled to enter into this strategic partnership with KKR, one of the world’s preeminent investment firms with an exemplary track record of value creation. Their investment and partnership will be instrumental to strengthening Coty’s balance sheet and helping the company to achieve long-term growth in shareholder value.”
Johannes Huth, Partner and Head of KKR EMEA, said: “Coty is a leader in the attractive global beauty market with iconic brands, global presence and scale, and a strong track record of innovation and growth. We are excited to form this partnership to invest in Coty to support it through this period of unprecedented global uncertainty and allow it to emerge as a stronger, more agile business, and to acquire a majority stake in Wella, a market leader with a strong portfolio of brands in the attractive professional hair market where we see significant opportunities to accelerate growth in partnership with its experienced leadership team. We look forward to working towards the establishment of a lasting and value-creating strategic partnership.”
For the financial results for the third quarter of fiscal year 2020, ended 31st March, 2020, the net revenue decreased 23.2%, with 19.5% organic LFL decline, in-line with recent update. The adjusted operating income was $0.1 million, weighed down by significant operating deleverage, with an adjusted EPS of $(0.08). Strong immediate liquidity position of $1.3 billion in cash on hand and secured holiday on leverage covenant for next 4 quarters, with no change in funding costs.
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Comprehensive plan to reduce fixed cost by $700 million (approximately 25% of the current fixed cost base) over the next 30 months by amplifying the turnaround plan across the organization, including supply chain and controllable fixed costs, with over 2/3 of the savings incremental to the original turnaround plan.