For some background: a Reverse Morris Trust (RMT), a spin-off-and-sale move, is named for a 1964 IRS lawsuit and combines a tax-free spin-off to shareholders with a prearranged merger. These types of transactions are used by large companies that are slimming down. In order for such combinations to be tax free, the firm unloading assets needs to own more than half the combined entity.
In the past year, P&G has shed brands to focus on its core portfolio. In fact, the company sold its Duracell brand to Warren Buffett. Parting with these beauty brands really seems like a natural progression for P&G.
Separately, P&G is targeting to pay dividends and retire shares worth up to $70 billion over a four-year period. This would take place during fiscal years 2016 to 2019 through a combination of shares being eliminated, this RMT brands transaction and the previously announced Duracell transaction.
Based on Coty’s current stock price and outstanding shares and equity grants, the value of the transaction is in the area of $15 billion. What makes up this value is roughly 413 million shares, or 52% of the diluted equity of the newly combined company, valued at $13.1 billion, and the assumption of $1.9 billion of debt by the entity holding RMT brands.
A.G. Lafley, chairman, president and chief executive of P&G, said:
This represents a significant step forward in the work to focus our portfolio on 10 categories and 65 brands that best leverage P&G’s core competencies. We have leading global brand positions in these categories, consumer preferred products and leading brands in the largest markets. These businesses and brands have historically grown faster and have been more profitable than the balance. We expect these ten categories to grow and create value as we focus the energy and resources of the company exclusively on them.
Shares of P&G were up fractionally to $81.17 Thursday morning. The stock has a consensus analyst price target of $88.00 and a 52-week trading range of $77.10 to $93.89.
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