Shares of Coty (COTY 1.64%) were slipping today after the cosmetics company announced a secondary stock offering last night, and priced it this morning below the stock's closing price yesterday.
The offering came from shares owned by KKR, the private equity firm that helped Coty restructure during the pandemic, so it won't dilute shareholders, but it does seem to signal that KKR believes the upside potential to the stock has waned.
As of 1:07 p.m. EDT, the stock was down 10.3%.
KKR will be selling 50 million Class A shares of Coty stock, or approximately 7% of Coty's shares outstanding. After the stock closed at $9.28 last night, Coty priced the offering at $8.53 this morning, significantly less than its market value at the time of the announcement. However, the stock plunged past that point today, trading around $8.30 this afternoon, so KKR may have to lower its asking price.
The sale represents about a third of KKR's existing stake, and after the offering is completed, it will own 10.9% of Coty through Series B convertible preferred stock.
There's nothing particularly alarming about KKR's stock sale and it's typical for private equity firms to want to cash out some profits after a stock bounces like this. KKR took a stake in Coty last year when the stock was flailing and bought a majority stake in its professional care business, Wella, giving Coty a much-needed infusion of capital. That helps explain why the stock has more than doubled over the last year.
While the sale could signal that KKR believes the upside to the cosmetics stock is fading, it's still retaining two-thirds of its stake in the company. In Coty's fiscal fourth-quarter earnings report in late August, investors cheered as the company said it was targeting low-teens comparable sales for fiscal 2022. That's one sign the turnaround is making progress regardless of today's stock sale announcement.