Beauty, personal care, and cosmetics company Coty (COTY 0.09%) is spinning off its Wella division into a standalone company as part of a $4.3 billion investment deal with global equity firm KKR. This part of the transaction will see the Wella, Clairol, OPI, and ghd brands turned into a separate company, with KKR holding a 60% stake and Coty retaining 40% ownership of the new enterprise, which will carry the Wella name.
Coty earlier responded to the coronavirus pandemic and the plunge in share value the outbreak caused by cutting executive pay by a quarter in mid-April. At that point, the company was still trying to sell its professional beauty division. Now, with the KKR deal, it has realized that goal.
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The four brands make up Coty's professional beauty and retail hair divisions. Divesting itself of these business areas may help Coty refocus on its large and popular luxury division.
The spinoff is one of several major elements in a strategic partnership between Coty and KKR. Coty will receive $3 billion in cash and most of the balance in sales of convertible preferred shares to KKR. The convertible preferred shares feature a 9% coupon and can be converted into regular shares for $6.24. KKR also gets to place two directors on Coty's board.
Coty expects to slash fixed costs by $700 million through the spinoff. COO and CFO Pierre-Andre Terisse said the deal created "an increased sense of energy and excitement" at Coty, and, in terms of the company's Turnaround Plan, out of "a number of steps to continue Coty's transformation, the strategic partnership with KKR is clearly the most game-changing."
