Why P&G’s Deal with Coty on its Beauty Business May be a Win-Win

Published on 17 Jul, 2015

P&G Beauty Business Research

Undoubtedly, the acquisition of Procter & Gamble’s beauty business by Coty will propel Coty into the top league of beauty manufacturers.

With revenues doubling after acquisition at ~USD 10.3 billion, Coty will be the fifth largest beauty products manufacturer behind L’Oreal, Unilever, P&G and Estee Lauder.

The acquisition will provide Coty with significant cost synergies to the tune of about US$ 550 million. The deal will also help Coty to expand its global footprint to major markets such as Brazil and Japan while strengthening its current position in the existing markets.

However, there are certain reports suggesting that the investors of Coty seem to be questioning the benefits of this mega-merger, and thus, are nervous. In my opinion, the drop in share price is just a temporary incident, much similar to earlier incidents of several mega-mergers.

With P&G’s hair color business, Coty is expected to enter new product category and will strengthen its position in premium offerings in fragrances category with brands such as Hugo Boss, Dolce & Gabbana, Gucci, and Lacoste from P&G’s product portfolio.

Continued push for organic and inorganic expansion is expected to propel Coty to be the largest fragrance manufacturer and third largest in color and cosmetics globally. For P&G, the selloff will provide them with immediate capital gain and the company can further sharpen its focus on 65 selected profit making beauty brands such as Olay. The deal is expected to be a win-win situation for both Coty and P&G.