P&G nears end of brand cull after beauty deal with Coty

P&G says it has “effectively completed” its brand cull as it merges 43 of its beauty brands with Coty, leaving it close to its aim of having 65 brands in 10 categories where it believes it can “create value”.

The deal includes its global salon professional hair care and colour, retail hair colour, cosmetics and fine fragrance businesses as well as some of its hairstyling brands. Max Factor, Covergirl and Wella are among the brands involved in the merger, which in total had sales of $5.9bn in the 2014 fiscal year.

P&G CEO AG Lafley says the deal represent a “significant step forward” in the company’s plans to cut its portfolio to 10 categories and 65 brands. Speaking on a call this afternoon (9 July) CFO Jon Moeller said P&G has now got rid of 93 of the roughly 100 brands it plans to divest or discontinue and that is has completed “substantially all” of its planned restructure.

Lafley says the brands that remain are in categories where P&G has “leading global positions” and which have historically grown faster and been more profitable than the rest of its business.

The 10 categories on which it will now focus are fabric care, household care, grooming, oral care, personal healthcare, beauty, family care, feminine care, hair care and skin and personal care.

“We expect these 10 categories to grow and create value as we focus the energy and resources of the company exclusively on them,” he adds.

P&G says it is yet to decide the nature of the deal or whether it will be a split-off or spin-off. However, the firm says it would prefer a so-called “Reverse Morris Trust” transaction, whereby P&G shareholders could exchange P&G shares for Coty shares.

The deal will result in a “one-time earnings gain” of between $5bn and $7bn.

A more streamlined P&G

P&G announced its plans to axe up to 100 brands almost a year ago in a move aimed at streamlining the business and accelerating growth.The most high profile casualty was Duracell, which was sold to Warren Buffett.

It has since made a number of further decisions aimed at cutting costs, including getting rid of some of its brand ambassadors and cutting its agency roster.

It is also looking to drive improved marketing efficiencies, mostly by switching to more digital, social and mobile campaigns.

P&G warned earlier this year that total sales would fall by up to 5% for the last financial year, which ended 30 June.

The Coty perspective

Coty claims the deal will “instantly create one of the world’s largest beauty companies with annual revenues of more than $10bn. It now expects to come the global leader in fragrance and to enhance its position in cosmetics, as well as access to a new category in hair colour.

Bart Becht, Coty’s chairman and interim CEO, says: “With the beauty talent from both sides and the fantastic portfolio of world-class brands, we have the opportunity to create a highly focused, pure-play leader and challenger in beauty which can deliver exciting opportunities and benefits for employees, licensors, customers and suppliers.”