Coty Inc. to Merge P&G’s Fragrance, Color Cosmetics and Hair Color
Business into the Company Through a Reverse Morris Trust Structure
Post-Integration, Will Create Strong Platform for Future Growth,
Organically or Through Acquisitions
Meaningful EPS Accretion and Unlocking of Synergies
Increase in Annual Dividend to $0.50 per share Post-Closing
NEW YORK--(BUSINESS WIRE)--Jul. 9, 2015--
Coty Inc. (NYSE:COTY) announced today the signing of a definitive
agreement to merge The Procter & Gamble Company’s (NYSE:PG) fine
fragrance, color cosmetics, and hair color businesses (“P&G Beauty
Business”) into Coty through a tax-free Reverse Morris Trust
transaction. The transaction is based on a proposal by Coty valuing the
P&G Beauty Business at approximately $12.5 billion at the time the
proposal was made. Following the transaction, P&G shareholders will own
52% of all outstanding shares on a fully diluted basis (inclusive of all
outstanding equity grants), while Coty’s existing shareholders would own
48% percent of the combined company.
The transaction will instantly create one of the world’s largest beauty
companies, with pro forma combined annual revenues of more than $10
billion based on fiscal year 2014 performance, strengthening its
leadership position in the $300 billion global beauty industry. Together
with P&G’s businesses, Coty is expected to become the global leader in
fragrances and to significantly enhance its position in color cosmetics.
P&G’s businesses include leading fragrance brands such as Hugo Boss,
Dolce & Gabbana and Gucci and the color cosmetics brands COVERGIRL and
Max Factor. The transaction also gives Coty an attractive new category
in the beauty industry through the addition of P&G’s hair color
business, led by Wella and Clairol. The transaction will significantly
expand Coty’s geographical footprint, providing scale in large beauty
markets like Brazil and Japan, while also increasing critical mass in
important geographies in which Coty currently operates, such as in North
America, Europe, the Middle East and Asia.
Bart Becht, Chairman and Interim CEO of Coty, commented: “With the
Beauty talent from both sides and the fantastic portfolio of world-class
brands, we have the opportunity to create a highly focused, pure-play
leader and challenger in Beauty which can deliver exciting opportunities
and benefits for employees, licensors, customers and suppliers. 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. All of this has the potential to lead to accelerated value
creation for Coty shareholders.”
Impact of Transaction
Based on fiscal year 2014 results, Coty and the P&G Beauty Business
would have more than $10 billion in combined pro forma revenues,
doubling the size of Coty. The P&G Beauty Business achieved revenues of
$5.9 billion in the fiscal year ended June 2014, with a carve-out EBITDA
of $1.2 billion, which excludes approximately $400 million of allocated
overhead costs that will not be transferred with the business.
Coty expects to realize approximately $550 million in total cost savings
on an annualized basis over the next three years, including the $400
million in non-transferred costs and an incremental $150 million in
additional cost synergies, equating to 10% of the acquired revenues.
These savings, together with working capital improvement and growth
prospects anticipated from the creation of a focused beauty player, is
expected to drive material financial improvements. Coty anticipates
incurring one-time costs of approximately $500 million related to the
transaction, plus an additional $400 million of capital expenditures,
over the next three years. Excluding the impact of transaction
amortization, the combined pro forma increase to Coty’s FY15 earnings
per share base is approximately $0.33 to $0.39, including the assumed
three year implementation of full run-rate synergies. At the close of
the transaction, Coty expects to increase its annual dividend to $0.50
per share.
Management, Governance and Ownership
Bart Becht, Coty Chairman and Interim Chief Executive Officer, will
oversee a management team, including Coty Chief Financial Officer
Patrice de Talhouët, together with a broader leadership organization
consisting of executives from both businesses. The Board of Directors
will not change as a result of the transaction.
JAB Cosmetics B.V., the owner of all of the outstanding shares of Coty’s
Class B common stock representing approximately 97% of Coty’s
outstanding voting power, has granted the shareholder consent required
in connection with the transaction. In order to facilitate the
transaction, JAB has also agreed to convert all such shares into Class A
common stock, subject to completion of the transaction. Following such
conversion, Coty’s common stock will consist of a single class. JAB will
remain the largest individual shareholder, owning approximately 33% of
the fully diluted shares outstanding at the close of the transaction.
Transaction Details
The transaction will be effected through a Reverse Morris Trust
structure, which involves the separation of the P&G Beauty Business from
P&G, followed by a merger of the P&G Beauty Business with a subsidiary
of Coty. While the transaction agreement permits P&G to select the form
of the separation, and P&G has not yet made a determination as to
whether the separation will be a “spin-off” or a “split-off,” assuming
P&G’s current preference for effecting the separation through a
“split-off” transaction, P&G shareholders can elect to participate in an
exchange offer to exchange their P&G shares for shares of a newly formed
company comprising of the P&G Beauty Business (“Newco”). Under the terms
of the transaction agreement, immediately after the completion of this
“split-off,” Newco will merge with a subsidiary of Coty and P&G
shareholders will receive shares of Coty in exchange for their shares of
Newco. This Reverse Morris Trust transaction has been approved by the
boards of both companies.
Coty’s transaction proposal valued the P&G Beauty Business at $12.5
billion, based on the number of Coty basic shares outstanding (i.e.
excluding the impact of Coty’s outstanding equity awards) and an average
Coty trading price at the time of the proposal. The aggregate
consideration in the transaction will consist of shares in the combined
company issued to participating P&G shareholders, as well as the
assumption of debt from the P&G Beauty Business. The share issuance is
structured to result in P&G shareholders receiving 52% of all
outstanding shares in the combined company on a fully diluted basis.
Coty’s proposal valued this component at approximately $9.6 billion at
the time the proposal was submitted. The remaining consideration of $2.9
billion in assumed debt from the P&G Beauty Business is subject to a $1
billion adjustment within a collar based on the trading price of Coty’s
stock (range of $22.06 to $27.06 per share) prior to the close of the
transaction as well as other contractual valuation adjustments. The
assumed debt is expected to be between approximately $1.9 billion and
$3.9 billion. The actual transaction value will be known at closing
based on Coty’s then current share price and fully diluted share count
as well as the final level of assumed debt.
The transaction is structured to be tax-efficient to P&G and tax-free to
Coty and the shareholders of both companies. It is expected to close in
the second half of calendar year 2016, subject to regulatory clearances,
works council consultations, and other customary conditions. Transfer of
certain fragrance brand licenses from P&G to Coty are subject to
licensor consent.
Financing
At the close of the transaction, Coty will assume $2.9 billion of debt
of the P&G Beauty Business (subject to the above-described adjustment).
Additionally, as part of the transaction, Coty will refinance its
existing debt. On a combined basis, the business at close is expected to
have moderate pro forma debt leverage of approximately 3.0x net debt /
Adjusted EBITDA, providing ample cash flow for the enhanced dividend
while preserving strategic flexibility.
Advisors
Morgan Stanley & Co. LLC is serving as lead financial advisor to Coty.
Barclays, J.P. Morgan and BofA Merrill Lynch are also acting as
financial advisors, with Skadden, Arps, Slate, Meagher & Flom LLP
serving as legal counsel, McDermott Will & Emery LLP serving as tax and
U.S. antitrust counsel and Freshfields Bruckhaus Deringer serving as
non-U.S. antitrust counsel. Goldman, Sachs & Co, is serving as financial
advisor, Cadwalader, Wickersham & Taft LLP is serving as tax counsel and
Jones Day is serving as legal counsel to P&G.
Fiscal Year 2015 Guidance
Coty today also provided updated fiscal year 2015 guidance. The company
expects FY15 net revenue to be in line with the prior year on a
like-for-like basis, and reiterates its prior guidance of FY15 adjusted
earnings per diluted share of between $0.95 and $0.98, reflecting
year-on-year growth between 17% and 21%. The earnings per share guidance
includes the negative impact of foreign currency translation and the
impact of the Bourjois acquisition.
Conference Call
Coty will host a conference call at 9:00 a.m. (ET) today, July 9 to
discuss this announcement. The dial-in number for the call is (855)
889-8783 in the U.S. or (720) 634-2929 internationally (conference
passcode number: 77167654). The call will also be webcast live at http://investors.coty.com.
The conference call will be available for replay. The replay dial-in
number is (855) 859-2056 in the U.S. or (404) 537-3406 outside the U.S.
(conference passcode number: 77167654).
About Coty
Coty is a leading global beauty company with net revenues of $4.6
billion for the fiscal year ended June 30, 2014. Founded in Paris in
1904, Coty is a pure play beauty company with a portfolio of well-known
fragrances, color cosmetics and skin & body care products sold in over
130 countries and territories. Coty’s product offerings include such
power brands as adidas, Calvin Klein, Chloé, DAVIDOFF, Marc Jacobs,
OPI, philosophy, Playboy, Rimmel and Sally Hansen.
For additional information about Coty, please visit www.Coty.com.
Certain statements in this press release are forward-looking statements.
These forward-looking statements reflect Coty’s current views with
respect to the completion of the transaction with P&G. These
forward-looking statements are generally identified by words or phrases,
such as “anticipate,” “expect,” “should,” “would,” “could,” “intend,”
“plan,” “project,” “seek,” “believe,” “will,” “opportunity,”
“potential,” and similar words or phrases. Actual results may differ
materially from the results predicted due to risks and uncertainties
including inaccuracies in our assumptions in evaluating the transaction,
difficulties in integrating the P&G Beauty Business into Coty and other
difficulties in achieving the expected benefits of the transaction. All
statements in this communication, other than those relating to
historical information or current conditions, are forward-looking
statements. We intend these forward-looking statements to be covered by
the safe harbor provisions for forward-looking statements in the Private
Securities Litigation Reform Act of 1995. These forward-looking
statements are subject to a number of risks and uncertainties, many of
which are beyond the control of Coty, which could cause actual results
to differ materially from such statements.
Risks and uncertainties relating to the proposed transaction with P&G
include, but are not limited to: uncertainties as to the timing of the
transaction; the risk that regulatory or other approvals required for
the transaction are not obtained or are obtained subject to conditions
that are not anticipated, including certain licensor consents;
competitive responses to the transaction; litigation relating to the
transaction; uncertainty of the expected financial performance of the
combined company following completion of the proposed transaction; the
ability of Coty to achieve the cost-savings and synergies contemplated
by the proposed transaction within the expected time frame; the ability
of Coty to promptly and effectively integrate the P&G Beauty Business
and Coty; the effects of the business combination of Coty and the P&G
Beauty Business, including the combined company’s future financial
condition, operating results, strategy and plans; and disruption from
the proposed transaction making it more difficult to maintain
relationships with customers, employees or suppliers.
The foregoing review of important factors should not be construed as
exhaustive and should be read in conjunction with the other cautionary
statements that are included elsewhere. More information about potential
risks and uncertainties that could affect Coty’s business and financial
results is included under “Risk Factors” and “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” in Coty’s
Annual Report on Form 10-K for the fiscal year ended June 30, 2014, and
other periodic reports Coty has filed and may file with the Securities
and Exchange Commission from time to time. Any forward-looking
statements made in this communication are qualified in their entirety by
these cautionary statements, and there can be no assurance that the
actual results or developments anticipated by us will be realized or,
even if substantially realized, that they will have the expected
consequences to, or effects on, us or our business or operations. Except
to the extent required by applicable law, Coty undertakes no obligation
to update publicly or revise any forward-looking statement, whether as a
result of new information, future developments or otherwise.
Important Additional Information
In connection with the proposed transaction, Coty and the P&G Beauty
Business will file registration statements with the SEC registering
shares of Coty common stock and common stock of the P&G Beauty Business.
Coty’s registration statement will also include an information statement
and prospectus of Coty relating to the proposed transaction. P&G
shareholders are urged to read the prospectus and/or information
statement that will be included in the registration statements and any
other relevant documents when they become available, and Coty
shareholders are urged to read the information statement and any other
relevant documents when they become available, because they will contain
important information about Coty, the P&G Beauty Business and the
proposed transaction. The documents relating to the proposed transaction
(when they become available) can also be obtained free of charge from
the SEC’s website at www.sec.gov.
The documents (when they are available) can also be obtained free of
charge from Coty upon written request to Investor Relations, 350 Fifth
Avenue, New York, New York 10118 or by calling 212-389-7300.
This communication is not intended to and does not constitute an offer
to sell or the solicitation of an offer to subscribe for or buy or an
invitation to purchase or subscribe for any securities or the
solicitation of any vote or approval in any jurisdiction pursuant to the
above described transactions, the merger or otherwise, nor shall there
be any sale, issuance or transfer of securities in any jurisdiction in
contravention of applicable law. No offer of securities shall be made
except by means of a prospectus meeting the requirements of Section 10
of the Securities Act of 1933, as amended.
View source version on businesswire.com: http://www.businesswire.com/news/home/20150709005599/en/
Source: Coty Inc.
Coty
Investor Relations
Kevin Monaco, 212-389-6815
or
Media
Relations
Jessica Baltera, 212-389-7584