Investor Set to Boost Stake in Coty -- WSJ
February 13 2019 - 3:02AM
Dow Jones News
By Saabira Chaudhuri
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (February 13, 2019).
JAB Ltd. has offered to significantly boost its stake in Coty
Inc. by buying up to $1.75 billion in shares, a move intended to
signal its confidence in the embattled beauty giant.
JAB on Tuesday launched a tender offer to buy up to 150 million
Coty shares for $11.65 a share in cash, a 21% premium to Monday's
closing price. If successful, the purchase would boost JAB's stake
in Coty, whose products include OPI nail polish and CoverGirl
makeup, to 60% from 40%. The move comes as Coty shares have fallen
sharply over the past year.
JAB, which also owns Krispy Kreme, Dr Pepper and Peet's Coffee,
has run Coty since buying the castoff perfume business from Pfizer
Inc. in 1992.
While JAB has become a consumer-goods powerhouse after a string
of acquisitions, Coty's $12 billion purchase of more than 40 brands
from Procter & Gamble Co. in 2016 has been problematic.
Since that deal, Coty's sales have slumped and the company has
named a new chief executive and financial head. Its former
chairman, a JAB senior partner, has also left both Coty and the
investment firm.
Coty has said some of the former P&G brands were in worse
condition than it anticipated when it agreed to buy them and
suffered further as consumers shifted away from mass-market brands
sold in drugstores.
However, JAB managing partner Peter Harf on Tuesday defended the
deal and said integrating the business had been the major
problem.
"We underestimated its complexity, we took it lightly, that's
the problem," Mr. Harf said in an interview.
He said an aging population and social media could benefit
hair-color products and cosmetics, and that the business is
relatively resilient. Even in a tough economy, people still want to
look good, he said.
Mr. Harf said JAB's plan to buy more shares in the beauty
company was intended to signal that the investment firm thinks
Coty's problems can be fixed under the new CEO.
"We want to show the market that we support the company and
believe in management," said Mr. Harf, noting that the move also
offers shareholders looking for an exit an easy out.
Coty's new chief, Pierre Laubies, is from JAB's executive
stable. He previously ran Jacobs Douwe Egberts, which was created
in 2014 by the combination of Mondelez International Inc.'s coffee
business with a European coffee company controlled by JAB.
JAB's offer to buy more shares is contingent on the
recommendation of Coty's independent directors.
Jonathan Feeney, an analyst at Consumer Edge, raised his price
target on Coty stock to $14 from $10 on the news, saying he expects
the board to approve the deal and the full offer to be subscribed.
The move, Mr. Feeney said, gives JAB more control to cut Coty's
high expenses and "shows confidence from knowledgeable insiders in
existing management's plans."
JAB's focus on Coty is a relative outlier for the company, whose
priorities have increasingly shifted toward food and drinks brands.
Last year it agreed to pay $26 billion to buy Dr Pepper Snapple
Group Inc., the No. 3 soft-drink company in the U.S. It also
acquired British sandwich chain Pret A Manger Ltd. It already owns
Peet's Coffee & Tea, Krispy Kreme doughnuts and Panera Bread
Co., after a decadeslong acquisition spree. In late 2015, JAB took
control of Keurig Green Mountain in a $13.9 billion deal that
further expanded its coffee business.
--Micah Maidenberg contributed to this article.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
(END) Dow Jones Newswires
February 13, 2019 02:47 ET (07:47 GMT)
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