Coty Inc. announced the completion, on 30th November, 2020, of the sale of a majority stake in its Professional and Retail Hair business – including the Wella, Clairol, OPI and ghd brands (together, “Wella”) – to KKR.
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As part of the transaction, Coty has received net cash proceeds of approximately $2.5 billion, and will retain a 40% stake in the business. Coty expects to utilize approximately $2 billion of the net proceeds to pay down its Term Loans A and B on a pro rata basis, with the remainder used for general corporate purposes, including initially paying down its revolver.
Following the Wella divestment – and with expected positive cash flow in Q2 2021 – Coty is expected to reduce its financial net debt from $7.9 billion to approximately $5.0 billion. Taking into account Coty’s retained 40% Wella stake (initially valued at $1.3 billion), the company’s economic net debt will stand below $4.0 billion, a substantial reduction that will enhance Coty’s flexibility to invest behind key brands and navigate a dynamic operating environment.
Commenting on the announcement, Sue Y. Nabi, Coty’s CEO, said, “Today marks an important milestone in Coty’s transformation and the development of a stronger, more focused and flexible business that’s set up for long-term success.”
“As noted on our Q1 earnings announcement, we remain relentlessly focused on maintaining diligent cost control across the company and delivering on our financial commitments. As such, the Wella divestment reflects the excellent progress being made in improving Coty’s leverage profile. This substantial debt reduction will, in turn, enable us to increase investments behind our strategic priorities, including strengthening our business in core markets and categories, while simultaneously fueling our new growth engines: e-commerce & DTC, skincare, prestige make-up and Asia,” continued Sue Y. Nabi.
“The Wella sale is also a key part of the simplification of Coty: streamlining our structure to focus on our two core businesses: Prestige Beauty and Consumer Beauty. Nevertheless, I am very pleased that Coty will still share in Wella’s success through our remaining 40% stake,” she added.
Coty’s Q1 results noted that Wella’s net revenue grew by 7% as salons reopened and the retail hair and nail category performed strongly.
Wella’s results supported Coty’s broader Q1 performance, which showed significant improvement from Q4 of FY2020 in all regions and across both Prestige and Consumer Beauty businesses. The Company reported fixed costs savings of approximately $80 million in the quarter – putting Coty on track to deliver over $200 million of savings in FY2021, while still maintaining focused marketing investments. In addition, Coty grew adjusted operating income by 24% in the quarter and saw over 50% growth of total company earnings per share (EPS).
JAB remains Coty’s largest shareholder, with 50% ownership in the company, while KKR and Coty’s Executive Chairman Peter Harf are the second and third largest shareholders, with a 15% and 5% stake, respectively, following the expected completion of Peter Harf’s purchase of a portion of KKR’s Series B preferred convertible shares.