KKR Gives Coty a Lifeline in $4.3 Billion Deal for Beauty Unit

(Bloomberg) -- Coty Inc. agreed to sell the Wella and Clairol brands to buyout firm KKR & Co. as part of a $4.3 billion deal including debt, giving the beleaguered cosmetics company a financial infusion as the coronavirus pandemic upends the retail industry.

The sale of Coty’s professional beauty and retail hair-care businesses also gives KKR a stake in Coty through $750 million in convertible preferred shares. Coty will carve out Wella into a standalone company in which KKR will acquire a 60% stake, with Coty retaining the rest, according to a statement Monday.

Coty is using the opportunity to free itself of the “complexities” tied to the Wella business and let it prioritize investments behind mass beauty and the Kylie Jenner brand, Chief Operating Officer Pierre-Andre Terisse said in an interview. “We wanted to be able to focus on the remainder of categories because we felt we had too many.”

The agreement follows a monthslong sale process for the hair and nails business that drew interest from some of the world’s largest buyout firms, as Coty pursues a broader turnaround centered on boosting margins and reducing leverage. The New York-based company took billions of dollars in writedowns last year, before the coronavirus created further challenges from widespread lockdowns and sudden changes in consumer behavior.

Coty shares, which were temporarily halted early Monday due to volatility, fell 4.2% at 12:06 p.m. in New York. Through Friday’s close, the shares had declined more than 50% this year, compared to a 9% drop in the S&P 500 Index.

‘Declining Traffic’

Sales fell sharply in March due to “the broad-based store closures and declining traffic in open retailers,” Coty said in the statement. Revenue in the professional beauty unit slipped 12% in the fiscal third quarter, excluding currency changes and acquisitions, while the luxury operations declined 26% and the consumer division slid 17%.

The professional beauty unit generated $361 million in revenue -- about 24% of Coty’s total -- during the three months ended in March.

KKR’s plan to acquire control of the hair-care business is subject to limited due diligence. When it signs a definitive deal agreement for the shampoo brands, it will also buy an additional $250 million of Coty convertible preferred shares. KKR will also get two seats on Coty’s board after the deal closes.

The deal could result in additional cash proceeds of $3 billion for Coty, helping the company reduce leverage, according to the statement. The cosmetics maker is majority owned by JAB Investments.

German shampoo maker Henkel AG and KKR were among suitors for the professional beauty business, though the sales process was complicated by the coronavirus pandemic, Bloomberg News reported last month.

©2020 Bloomberg L.P.