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Cosmetics maker spends $200m to extend its collaboration with celebrity family

Cosmetics maker Coty has agreed to buy a 20 per cent stake in Kim Kardashian West’s make-up brand KKW for $200m, according to people with direct knowledge of the deal, expanding its collaboration with the celebrity family as its own sales flag.

The deal values the three-year-old company at $1bn, slightly less than the $1.2bn valuation Coty put on Ms Kardashian West’s younger sister Kylie Jenner’s business when it bought a 51 per cent stake last year. 

But by buying only a minority stake in KKW this time, Coty has taken a more cautious approach given its heavy debts and a global recession caused by the Covid-19 pandemic.

Coty does have the option to later acquire a majority stake in KKW, said one of the people familiar with the deal terms. No details on KKW’s sales or profits were disclosed. 

The KKW deal marks the latest step taken by Coty’s majority shareholder, JAB Holdings, to turn round the unprofitable cosmetics group whose shares have fallen 62 per cent this year.

The deal shows that fashion and beauty companies still see the Kardashian family, who rose to fame in 2007 with their reality TV show, as having the power to confer glamour on their often fading brands.

When rapper Kanye West, who is married to Kim Kardashian, announced that his fashion brand Yeezy had signed a 10-year deal with Gap last week, the shares in the retailer jumped nearly 20 per cent. 

By bringing another big social media star into the fold, Coty is trying to modernise its own portfolio of make-up brands, which include mass-market stalwarts such as CoverGirl and Max Factor.

Kim Kardashian West has 177m followers on Instagram, and Kylie Jenner has 182m, while their respective make-up brands together have another 30m or so.

With the deals, Coty is also adopting a model of direct-to-consumer online sales, paired with aggressive Instagram marketing. The approach has been perfected by a number of new upstart cosmetics brands that have challenged industry leaders L’Oréal and Estee Lauder in recent years.

Kim Kardashian West’s company sells its lines of lipsticks, eyeshadows, foundations and powders mostly through its own website, giving it better margins than some bigger brands that rely on selling wholesale in department stores.

KKW is expected to soon expand into skincare products, which has become the fastest-growing segment of the cosmetics industry as women eschew heavily made-up looks for more natural ones.

Coty has been the laggard in JAB’s portfolio since the cosmetic group’s disastrous acquisition of Procter & Gamble’s beauty business in 2015. It has changed management four times in five years and embarked on a series of unsuccessful turnround plans. 

Earlier this month, JAB took more direct control over Coty by appointing the holding company’s chairman Peter Harf as its new chief executive.

Alongside that announcement, Coty agreed to spin out and sell a majority stake in its professional beauty division to private equity group KKR in a deal that valued the business at $4.3bn. Separately, KKR agreed to inject $1bn in convertible debt into Coty and to take two board seats at the group to help with the turnround efforts. 

Both the Kylie Cosmetics and KKW deals came about through Mr Harf’s relationship with the Kardashian-Jenner family and in particular with matriarch Kris Jenner. Tiger Chark, a US-based boutique advisory firm, also worked on the two transactions for Coty, one person said. 

Aside from Coty, JAB’s portfolio also includes Pret A Manger and Panera Bread as well as controlling stakes in publicly traded Keurig Dr Pepper and JDE Peet’s. The group was founded to manage the wealth of Germany’s billionaire Reimann family, but also raises funds from outside investors.

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CEO of engineering powerhouse pins hopes on spinouts and radical decentralisation to boost returns and share price

The first job Björn Rosengren ever applied for was an internship at manufacturer Asea. He did not even get an interview. Now, at 61, he has been appointed to run the sprawling multinational it grew into: ABB.

For more than a decade, the Swiss-Swedish conglomerate, which created the first industrial robot in 1974, has been an ugly duckling among the top tier of high-tech industrial engineering companies. 

ABB is a paradox: a business that is dominantly positioned in some of the highest growth — and sexiest — high-tech engineering markets, and yet has a share price that has only inched upwards while those of competitors have soared.

It is the market leader in making and selling industrial robots in China, yet it is also a company for which earnings per share have decreased by an average of 6 per cent annually every year since 2009. 

“Many competitors have doubled their share price in the last 10 years,” said ABB’s new chief executive, Mr Rosengren, in an interview with the Financial Times, his first since his management team unveiled its new strategic plan for the company this month.

“This is a big question mark for me: how can a company with such good technology, such good products, be underperforming for so long?”

Mr Rosengren was appointed with a brief for radical change after years of shareholder disquiet. It adds to the size of the challenge facing him that his tenure started on February 1, as coronavirus began to shut down the global economy.

Global manufacturing PMI, a good proxy for the health of ABB’s customers, is at 42.4, according to data from IHS Markit, it’s fourth consecutive month indicating a contraction.

The Swede, a veteran of the engineering industry, is undeterred.

“When I look at the group, and the areas we are operating in, I would say that any company in the world would envy ABB for being positioned so well when it comes to taking advantage of [long-term] global trends which are taking place,” he said, citing themes such as automation, electrification and sustainability in which ABB excels.

He pointed to ABB’s three factories in Bergamo, the north Italian town that has been one of the single hardest-hit localities worldwide by the virus: “They have been at full speed during the whole crisis . . . Our factories are showcases ,” he said. “The business opportunity is enormous.” 

The substance of Mr Rosengren’s vision for ABB’s future, however, is about whipping ABB into financial shape, rather than chasing visions of a technologically gleaming, and high growth, future. Past chief executives have lent hard on such promises — and failed to deliver.

“Delivering financial focus is priority number one,” he said.

To do so, he can draw comfort from the support of the company’s two biggest shareholders over his new strategy, not least because they devised it, to radically decentralise the group and look at spinning out some of the businesses in its sprawling empire.

Johan Forssell, chief executive of Investor AB, the investment vehicle of the Wallenberg family, which owns 12.1 per cent of the company, told the FT he was “fully supportive of ABB’s new strategic direction”.

Europe’s largest activist investor, Cevian Capital, which owns 5.9 per cent of the company, has meanwhile been pushing for changes since it bought into ABB in 2015, an investment it is yet to make a return on.

Cevian is understood to be closely involved in discussing with Mr Rosengren which divisions ABB should put on the market.

The investment group has already scored a victory in a decision taken by ABB two years ago to hive off its giant power grids business, an $11bn sale to Hitachi, which will close at the end of this month. 

“Continued portfolio optimisation is vital,” Cevian co-founder Christer Gardell told the FT. Mr Rosengren, he said, was “one of the best industrial CEOs in Europe” and will rationalise ABB in a “fact-based and unemotional manner”.

The question, is whether, as some analysts fear, such radical plans to refocus the business deprioritise growth for ABB at precisely the moment, in a post-Covid world, when the opportunities offered in areas such as automation and electrification are greatest.

“If I were the CEO of Siemens or Schneider Electric I would have opened a bottle of champagne,” said Andreas Willi, a veteran analyst of the capital goods industry at JPMorgan. “ABB is effectively saying it is not going to fight them in these growth areas for now, but focus on financial performance.

“But by the time you have put your house in order,” he added, “It might be too late to compete.” 

Mr Rosengren’s decentralisation plan is certainly radical, covering everything from marine technologies to datacentre power systems.

With it, he hopes to unleash a dramatic bout of cost-cutting to drive margins across the board significantly higher, a template he used with success as the chief executive at Swedish engineering group Sandvik and earlier, at Finnish manufacturer Wartsila. 

ABB’s existing four strategic divisions — electrification, industrial automation, motion and robotics — will be broken down to become 18 autonomous businesses, he explained.

“These divisions [will be] the highest operational level, which means they are fully accountable for their P&L and their operational balance sheet,” he added. “[Management of each] will be fully accountable. They cannot blame anyone. They own their business.”

ABB’s biggest hindrance has been “complacency” in management caused by its old, confusing, top-heavy structure, he said. ABB’s head office is already undergoing a dramatic shrinkage: two years ago it employed 18,000. Mr Rosengren intends for it to have just 1,000 workers. That alone will translate into an annual cost saving of $800m.

Portfolio optimisation, he said, was the second key plank of his plan. By this autumn, he believes, it should be clear which businesses have a viable future in ABB — and which not. He would be “surprised”, he said, if one or more disposals of between $1bn-$5bn in size were not announced at the company’s capital markets day in November.

“It is very difficult to see that we should not be able to deliver shareholder value,” Mr Rosengren said of his plans: “I will not be satisfied until we get the margin up to around 15 per cent.” ABB reported an ebitda margin of just 11.1 per cent in its 2019 full-year results.

In some key areas of the business, Mr Rosengren is even more ambitious. ABB’s robotics division, he said, “should be a 15, 16, 17 per cent margin business”. Its current margin is just under 12 per cent, and it forecasts a 30 per cent contraction in orders for the business this quarter. 

On breaking up the company, the selling-off could prove easier said than done.

A great deal of ABB’s businesses are closely linked to each other. In addition, they do not all discretely divide into those that serve legacy, mature markets, and which offer high-growth potential for the future.

The biggest, which already achieves margins above Mr Rosengren’s goal, such as ABB’s motion businesses, meanwhile offer the fewest possibilities for the future.

As some analysts point out, under the broad, conceptual criteria for identifying which businesses to sell that have so far been articulated by Mr Rosengren, half of the company could be spun out.

For Mr Rosengren, his strategy is, nevertheless, the only viable course — and one with a limited timeframe, given his likely retirement in four years.

“If we don’t create shareholder value now,” he said, “then you never know what will happen with ABB.” 

How UK consumers were dragged into the Wirecard scandal

Millions of digital banking customers unable to access their money after German group’s collapse

Many users of banking apps powered by technology provided by Wirecard Card Solutions had never even heard of the company when its German parent collapsed last week.

But shortly after Wirecard filed for insolvency on Thursday, they suddenly found their accounts had been frozen, as millions of UK consumers and small business owners were dragged into the fraud that toppled the payments group.

How have UK banking customers been caught out?

Wirecard Card Solutions (WCS), the UK subsidiary of Wirecard, has quietly become a crucial part of the British fintech scene, providing the technology to enable consumer-facing start-ups, such as Pockit and Curve, to issue prepaid cards and process payments before they were regulated to do it themselves.

As late as last Thursday evening, senior Wirecard executives in the UK had been telling clients that the German parent company’s problems had “absolutely no relationship” with WCS, according to Boris Dyakonov, co-founder of business banking start-up Anna Money, which also relies on Wirecard technology.

But on Friday morning, the UK watchdog forced Wirecard’s UK division to cease all its regulated activities.

While the Newcastle-based WCS is run and regulated separately from Wirecard AG, the FCA said it had forced the UK business to stop activities to protect customer deposits and ensure it did not transfer any of its own assets to the German parent company. 

As a result customers — from business owners to cryptocurrency enthusiasts — that had signed up to digital accounts with companies using Wirecard systems, were unable to make payments or access their money.

Users of the Anna app were told they had less than an hour to withdraw funds before all 20,000 accounts were frozen. By Sunday afternoon, angry customers were threatening legal action, as the company’s executives sought to reassure them via a live video.

Who is affected?

Although millions of customers are potentially facing disruption, the problem is much more severe for some. Many WCS products are not designed for everyday use. Multi-currency cards issued by companies including Sainsbury’s Bank and Asda, for example, are used for foreign travel, which has been largely halted by the coronavirus pandemic.

One of the biggest companies involved in user terms is Curve, which has more than 1.3m accounts. Curve is designed to consolidate multiple cards into a single account, meaning it is used more frequently — but all of its customers are likely to have alternative ways to make payments.

More seriously affected are smaller companies such as Anna and Pockit, which provides accounts for people who struggle to access mainstream banks. Pockit has around 500,000 customers who rely on the app to pay direct debits and receive wages and benefits payments.

The Department of Work and Pensions has had to set up a dedicated team to assist Pockit customers who suddenly had nowhere to receive essential benefits payments due to be paid on Monday. 

What will happen now?

All the money held by affected customers should be safely in accounts at third-party banks, meaning that everyone should get their money back eventually. In the meantime, however, firms are scrambling to find a solution. 

Curve was already working to reduce its reliance on Wirecard and was aiming to be operational again — on different systems — by Monday morning. But the task will take longer for companies starting from scratch. 

“Any switching project in normal circumstances takes up to nine months,” Mr Dyakonov told customers on Sunday afternoon. “We’re aiming for 10 days to two weeks.”

WCS said it was working with the FCA to lift the suspension, which would solve the problems more quickly. Mr Dyakonov said the regulator “told us to come back for more news on Monday” — but neither the FCA nor WCS have commented on how long the restrictions would be in place.

The FCA on Friday advised that “customers who are in financial distress as a result of the payment freeze may be eligible for a hardship payment from their local authority.”

The reputational blow to companies reliant on Wirecard technology could be longer lasting, particularly as many of these app-based banks were already facing a battle to convince customers to move away from the mainstream lenders.

Michael Kent, chairman of payments group Azimo and an early investor in Curve, said the Wirecard issue “will impact customer trust, regulation and maybe even investment in the consumer fintech sector for years”.