Coty swaps 9% stake in Wella for half of KKR’s convertible preferred shares

Sale by the cosmetics owner is another move to help balance its books as professional care business doubles in value

Cosmetics conglomerate Coty has agreed to sell a 9% stake in its professional beauty brand Wella to KKR in exchange for half of the private equity’s preferred shares in Coty.

The cosmetics owner will, therefore, redeem around 47 million shares in the company’s common stock, while KKR will fork out some US$426m for the single-digit stake.

Upon completion, KKR will reduce its ownership to the equivalent of 45 million Coty Class A shares, around a 5.2% stake in the business.

The transaction is said to reflect a 50% appreciation in Wella’s value since Coty closed its 60% sale of Wella to KKR in December last year.

Coty will continue to own a 30% stake in the professional hair care business.

“Our strategy for unlocking value expansion in Coty has remained consistent, anchored on three key objectives: accelerating our sales and profit growth, deleveraging our balance sheet, and simplifying our capital structure,” said Sue Nabi, Coty’s Chief Executive.

“With freed funds to drive growth and deleveraging, it is another milestone in transforming Coty into a beauty powerhouse.”

According to the business, the sale will simplify Coty’s capital structure and result in an additional $26m in annual cash savings.

When combined with the KKR secondary share offering that closed in September, Coty has managed to save $52m in annual cash savings.

“The value of Wella has increased significantly since we undertook our partial divestment in 2020 and KKR became our strategic partner in the Wella business,” added Coty’s Chief Financial Officer, Laurent Mercier.

“Today’s announcement is a testament of our initial investment strategy of capitalising on the expected increase in Wella’s value over time to further our dual agenda of deleveraging and simplifying Coty’s capital structure.

“Our remaining stake in Wella remains a key financial asset for Coty, which we expected to bring further value over time.”

The transaction is expected to close in Q2 of FY22.

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