Coty Inc. (COTY) has inked a deal to sell a 4.7% stake in the professional beauty company, Wella, to KKR in a transaction valued at approximately $215.7 million. In return, Coty will redeem 56% of KKR’s remaining convertible preferred shares in the company. (See Coty stock charts on TipRanks)
Shares of the multinational beauty company gained 8.3% during the pre-market trading session on November 8.
Details of the Agreement
With the deal, Coty will be able to simplify its capital structure, reduce the number of diluted shares, and achieve $14 million in annual dividend cash savings. In combination with the two previous transactions with KKR in September and October, the total annual cash savings will amount to $65 million.
Earlier in October, Coty agreed to exchange a 9% stake in Wella for the equivalent of approximately 47 million shares of the company’s common stock.
Upon completion of the deal, which is expected in the coming weeks, Coty’s total ownership in Wella will reduce to 25.9%. Furthermore, KKR will retain a 2.4% ownership stake in Coty on an as-converted basis.
Management Weighs In
Coty CEO, Sue Y. Nabi, stated, “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.”
She further added, “With today’s announcement we are well advanced on simplifying our balance sheet and capital structure objectives, while simultaneously confirming the strong and growing value of our Wella stake. This is another milestone in transforming Coty into a beauty powerhouse.”
Wall Street’s Take
Consensus among analysts is a Moderate Buy based on 3 Buys, 3 Holds and 1 Sell. The average Coty price target of $10.54 implies 13.46% upside potential to current levels.
Furthermore, COTY scores a 9 out of 10 on TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.