Coty looks to offload brands including Wella, Clairol; shares rise

(Reuters) – Coty Inc (N:) is exploring the sale of its business unit that houses hair and nail care brands such as Wella, Clairol and OPI as part of its plan to whittle down its portfolio and cut debt, sending its shares up nearly 14% on Monday.

The cosmetics company has struggled to integrate about 40 beauty brands, including Covergirl and Max Factor, that it bought from Procter & Gamble (N:) in 2016, forcing it to take billions of dollars in writedowns and outline a four-year restructuring plan.

The company also said it was exploring options for its Brazilian unit as it shifts its focus to its fragrance, cosmetics and skin care businesses.

“Coty is the No. 2 player in the global professional hair business, which has high consumer loyalty and should be an attractive business to a potential buyer,” Wells Fargo (NYSE:) analyst Joe Lachky said.

Lachky, however, said the company’s Brazil business was less attractive given the macro-economic volatility in the country.

Coty’s professional beauty unit, which primarily sells hair and nail care products to salon professionals, raked in about $1.81 billion in annual sales and accounted for about 21% of its total revenue.

The unit, however, has seen falling sales in the last four quarters.

“(The announcement) accelerates this transformation and will help … deleverage our balance sheet, and improve our ability to invest in areas with the greatest growth potential,” Chief executive Officer Pierre Laubies said.

Coty said it would use the proceeds from any of the transactions to pay down debt and return excess cash to shareholders.

The company, which is majority owned by German conglomerate JAB Holdings, has hired Credit Suisse (SIX:) to run a sale process for the units, which generated about $2.7 billion in net revenue in fiscal 2019.

Earlier this year, JAB raised its stake in Coty to 60%, giving it a firmer grip on the company.

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