Coty Inc. has announced its intent to will sell roughly 9% of its stake in German hair care company Wella to private equity company KKR. The $426.5 million deal will give the multinational beauty company nearly half of its shares, owned by KKR. The deal will result in a 30.6% dip in Coty’s share in Wella, or $1.38 billion.
Laurent Mercier, Coty’s chief financial officer, called the move a “testament of our initial investment strategy of capitalizing on the expected increase in Wella’s value over time to further our dual agenda of deleveraging and simplifying Coty’s capital structure, with the added benefits of improving cash flow and driving earnings per share accretion.”
In June, Coty had a 40% stake in Wella with a book value of $1.26 billion. Coty, which owns Clairol, CoverGirl and OPI, among others, and has dozens of partnerships with Marc Jacobs to Stella McCartney, closed a deal in December 2020 to sell a majority stake in Wella, OPI, and Clairol to a joint venture, the majority of which is owned by KKR, its strategic partner.
Coty applied the $2.5 billion it received in the transaction to lower leverage; the company planned to lessen net debt by roughly $3 billion, from approximately $7.9 billion to $5 billion by the closure of 2021’s second quarter. This move coupled with the beauty brand’s 40% ownership in the joint venture was aimed to lower economic net debt under $4 billion. The reduction in debt would strengthen its flexibility to invest behind leading brands.
Since the undertaking of its partial divestment in 2020, Mercier said the value of Wella has increased significantly. The agreement, slated to close in the second quarter of 2020, Coty’s fiscal year, will result in a purported yearly cost savings of $52 million.
