Coty eyes Chanel’s Bourjois
Coty, the fragrance and beauty group also owns nail polish brand Sally Hansen.
Coty, whose brands include Rimmel, Calvin Klein and Davidoff, has made a binding offer to Chanel for its cosmetics brand Bourjois, in an all-share deal that would extend the US beauty company’s international expansion efforts.
Chanel has been offered 15m Coty shares, worth around $240m, for the ‘masstige’ colour cosmetics group, which is sold in 50 countries. ‘Masstige’, a portmanteau of ‘mass’ and ‘prestige’, is a term used to describe an increasingly critical sector of the luxury industry that offers premium products at accessible price points to mid-market consumers.
Coty and rivals L’Oréal and Estee Lauder have been scrambling to consolidate their foothold within the space to capitalise on the squeezed middle in mature markets trading down from higher-end brands, while emerging markets spawn a booming middle class keen to make entry level luxury purchases.
“We intend to examine the offer in more detail and enter constructive talks with Coty,” said Chanel. The privately held French luxury group would own approximately 14 per cent of Coty’s Class A shares, or 4 per cent of Coty’s total equity, which would give it a voting stake of less than 1 per cent.
The bid is the latest move by Coty to rebalance its portfolio and product mix to better capitalise on growth opportunities within the global beauty market. Its attempts to date have met with mixed success.
After it failed to buy door-to-door cosmetics seller Avon in 2012 for more than $10bn, the company launched an initial public offering to build a war chest for acquisitions and international expansion. But the $1bn IPO in June last year has failed to excite investors. Coty shares traded at $16.22 on Tuesday, down from the $17.50 IPO offer price.
“This offer for Bourjois is no surprise. Like Elizabeth Arden, Coty is a company that has a great deal of exposure to the weaker product lines and distribution channels of the beauty market, including personality-driven cosmetics and struggling US retailers like Walmart and Target,” said Rahul Sharma, an analyst at Neev Capital.
“Shareholders are acutely aware of these shortcomings. The focus now will be boosting its prime beauty brands portfolio, avoiding duplication and streamlining retail operations across markets.”
The spending power of a booming middle class in emerging markets continues to hold allure for Coty, despite headaches involved with its $400m acquisition of a stake in Chinese skincare brand TJoy in 2010. In February Coty and Avon unveiled a plan to sell Coty fragrances through Avon’s sales representatives in Brazil.
Bart Becht, Coty chairman and interim chief executive, said the acquisition of Bourjois would help the company reach new consumers in western Europe, where it is one of the market leaders, as well as the Middle East and Asia.
“We are looking forward to having the Bourjois brand as part of our portfolio of leading beauty products, as well as welcoming Chanel as a Coty shareholder,” Mr Becht said.
Mr Becht took the helm last month after the abrupt departure of Michele Scannavini, who left citing personal reasons. It marked the second change at the top in a little over two years. Bernd Beetz, Coty’s long-time chief, stepped down in 2012, about eight months after Mr Becht became chairman, and took a position in the spotlight in the public battle to acquire Avon.