JAB Holdings, the majority owner of cosmetics maker Coty, will tighten its control over the problem-plagued group by installing its chairman Peter Harf as chief executive.
The unexpected appointment means Coty will get its fourth chief executive in five years and will see JAB scrap a plan announced in February for Pierre Denis, the Jimmy Choo boss and Coty board member, to take over this summer. Mr Harf serves as Coty’s chairman at present.
Shares in Coty have dropped more than 60 per cent since the start of the year, continuing their decline even after private equity group KKR last month agreed to invest $750m into the business to help pay down Coty’s heavy debts.
On Monday, KKR finalised a deal to buy a 60 per cent stake in Coty’s professional beauty division, which includes brands such as Wella, Clairol, OPI and ghd. Coty will own the remainder of that new standalone business, which will be named Wella and is valued at $4.3bn.
The agreement unlocks a further $250m injection by KKR directly into Coty, which was conditional on a deal for its professional division being signed. Johannes Huth, head of KKR in Europe, is joining the Coty board along with one other representative.
The leadership change at Coty marks a significant shift in strategy for Mr Harf and JAB, which manages the fortune of Germany’s billionaire Reimann family and invests billions raised from outside investors such as sovereign funds and wealthy families.
Disagreements over how actively JAB’s top leadership should manage Coty and its other holdings prompted the departure in early 2019 of one of Mr Harf’s partners, Bart Becht, who believed the group should slow its acquisition spree and deliver better operational results.
Mr Harf, 74, and the other partner, Olivier Goudet, wanted instead to continue raising funds from outside investors and focus on dealmaking, leaving operations to a string of managers hired by JAB to run its portfolio companies.
Coty has been the laggard in the JAB empire in the past three years as it struggled with the integration of the $12.4bn acquisition of Procter & Gamble’s beauty business, which was intended to double the group’s size and allow it to better compete with beauty sector leaders L’Oréal and Estée Lauder.
Its mass-market make-up brands such as CoverGirl and Max Factor have been losing market share to newer rivals often promoted by celebrities and influencers on Instagram. The deal saddled Coty with heavy debts that left it fragile when the coronavirus crisis hit, shutting down a swath of its business selling products to hair and nail salons. Sales in its third quarter to the end of March were down 20 per cent on a comparable basis to reach $1.5bn, and, to cope, Coty announced a further $700m in cost cuts.
On Friday Forbes magazine reported that Kylie Jenner, who founded a make-up business that JAB acquired last year, had inflated her wealth to boost her spot in their ranking of female billionaires. Ms Jenner sold a 51 per cent stake in her company to JAB last year for nearly $1.2bn, and denied the report in posts to her Instagram account.
Last year, JAB paid $11.65 a share in Coty to increase its stake from 40 per cent to 60 per cent, believing that the company’s stock price was undervalued and vowing to deliver a turnround. Shares in New York-listed Coty finished last week at $3.63.
Aside from Coty, JAB has acquired interests in a number of consumer companies over the past decade including Pret A Manger and Panera Bread. Last week, JAB listed the coffee business it controls, JDE Peet’s, in an Amsterdam initial public offering that raised €2.25bn.
JAB declined to comment.
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