Companies and Brands

Can an $8 Billion Buyout Breathe Some Life Into Coty Stock?

Paul Ausick

Published: February 19, 2020 8:15 am

After Coty Inc. (NYSE: COTY) paid Procter & Gamble Co. (NYSE: PG) $12.5 billion for a truckload of beauty and cosmetic brands in a deal announced in 2015, Coty stock dropped 19%, So the company boosted its dividend by 25% (to $0.25 annually) in an effort to buy back investors’ affections. It only helped a little.

Since that July 2015 announcement, Coty’s stock has lost about 59% of its value, while the S&P 500 has gained more than 68%. Now, according to a report at Bloomberg News, Coty is looking to sell some of the brands it acquired from P&G, and the sale could fetch as much as $8 billion.

Among the potential buyers, according to unnamed “people with knowledge of the matter,” buyout firms like Advent, Bain Capital and KKR are interested and preparing to make bids in a first round that is due in the first week of March.

The potential sale reportedly includes Coty’s professional hair and nails products, which posted net revenues of $528.8 million in the company’s second fiscal quarter ended in December. Adjusted operating income was $90.8 million and adjusted operating margin was 17.2%.

Coty, which is controlled by European investment firm JAB, is looking to sell brands including Clairol, Good Hair Day, and OPI nail care, along with Coty’s Brazilian business. Last year, Coty paid $600 million for a majority interest in Kylie Jenner’s cosmetics line.

Also last year, Coty wrote down $3 billion of the $12.5 billion it spent to buy the brands from P&G. Coty had earlier in the year taken an impairment charge of nearly $1 billion on the acquisition.

If Coty goes through with the sale, and if the price it can bring is around $8 billion, that would be quite a coup. That implies that the consumer and luxury brands Coty acquired from P&G are essentially worthless or have skyrocketed in value.

Either way, Coty enjoys an infusion of cash and shareholders are likely to see an even higher dividend. The company now pays an annual dividend of $0.50 per share, double its late 2015 level. The dividend yield on the stock is 4.38%.

In premarket trading Wednesday, Coty stock traded up about 1.2%, at $11.68 in a 52-week range of $8.61 to $14.14. The 12-month consensus price target on the stock is $12.92.