Coty Appoints Chairman Peter Harf as CEO to Spearhead Turnaround -- Update
June 01 2020 - 8:49AM
Dow Jones News
By Ben Dummett and Sharon Terlep
Coty Inc. on Monday appointed its fourth new chief executive in
less than four years, and finalized its $2.5 billion deal to sell a
majority stake of its professional beauty and retail hair-care
businesses to KKR & Co, as the cosmetics and fragrance maker
strives to revive slumping sales and reduce its burdensome debt
load.
Peter Harf, Coty's current chairman, will also assume the CEO
role. The surprise move leaves the New York-based company's
fortunes directly in the hands of its largest shareholder, JAB
Holding Co., of which Mr. Harf is one of two managing partners. JAB
also counts Krispy Kreme and Keurig Dr Pepper among its
holdings.
The Wall Street Journal earlier reported the planned hiring of
Mr. Harf as Coty's new chief executive.
Mr. Harf has a lot riding on the turnaround as a major
shareholder of Coty who has been involved in the company since
1990. As part of his new role, he will jointly oversee a newly
created executive committee alongside Chief Financial Officer
Pierre-André Terisse and Gordon von Bretten, the company's chief
transformation officer, the people said.
Coty wants to implement changes more quickly as it aims to cut
costs by 25% over the next three years. Revenue growth is expected
in part to come from plans for additional investments in high-end
and social-media-driven brands such as Kylie Jenner's cosmetics
startup. Coty acquired a 51% stake in Kylie Cosmetics for $600
million in November to take advantage of the celebrity's brand that
is supported by 178 million Instagram followers.
It is also targeting additional investments in skin-care
products, which are more profitable than makeup, and in core
mass-beauty brands including Rimmel and CoverGirl to boost sales by
broadening their availability online and in stores, the people
familiar with the matter said.
Mr. Harf's appointment is unexpected since Coty, whose other
brands include Clairol hair dye and OPI nail polish, announced only
in February that Pierre Denis, previously head of the Jimmy Choo
fashion brand, and a Coty director, would take over the CEO role
this summer. He won't get that chance now, though he will remain a
company adviser.
The leadership turmoil underscores the mounting challenges Coty
faces to successfully emerge from more than $8 billion in debt at
the end of March and a failed attempt to compete against industry
heavyweights Estée Lauder Cos and L'Oréal SA in makeup and
fragrances.
In 2016, Coty acquired dozens of beauty brands from Procter
& Gamble Co. for $12 billion. But last year, it took a $3
billion write-down on the P&G business amid weakening sales as
consumers increasingly favor higher-end and niche beauty
brands.
Since then, Coty has focused on unwinding its effort of adding
businesses and churning out products. Instead it has sought to
shrink through asset sales and paying down debt -- a strategy Mr.
Harf has supported. "We didn't execute well because we tried to do
too many things at one time," Mr. Harf told The Wall Street Journal
in November.
The coronavirus pandemic, however, has undermined that strategy,
plunging Coty's sales amid the economic lockdown. The company's
results for the most recent quarter, announced in May, showed that
like-for-like sales fell 17% in the consumer beauty business, while
the luxury unit reported a 26% decline and the professional beauty
division fell 14%.
Coty is also counting on its finalized agreement with KKR &
Co. for a much-needed cash infusion to help alleviate investor
concerns over its outlook. The planned deal was announced last
month. At the time, Coty said the moves would help to strengthen
its balance sheet and achieve long-term growth.
But the stock is down sharply since that announcement, in part
due to the high interest-rate costs Coty faces under the
agreement.
Coty is getting an immediate cash injection of $750 million from
the sale of convertible preferred shares that pay KKR an interest
rate of 9% and an additional $250 million from a subsequent issue
of the same type of securities to KKR in the coming weeks. Those
deals entitle the private-equity firm to two board seats. KKR has
also agreed to acquire a 60% of Coty's professional beauty and
retail hair-care businesses for about $2.5 billion.
Coty said it expects that deal to close in the next six to nine
months.
Write to Ben Dummett at ben.dummett@wsj.com and Sharon Terlep at
sharon.terlep@wsj.com
(END) Dow Jones Newswires
June 01, 2020 08:34 ET (12:34 GMT)
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