PG Procter and Gamble Co

By Saabira Chaudhuri 

JAB Ltd. has offered to significantly boost its stake in Coty Inc. by buying up to $1.75 billion in shares, a move intended to signal its confidence in the embattled beauty giant.

JAB on Tuesday launched a tender offer to buy up to 150 million Coty shares for $11.65 a share in cash, a 21% premium to Monday's closing price. If successful, the purchase would boost JAB's stake in Coty, whose products include OPI nail polish and CoverGirl makeup, to 60% from 40%.

JAB, which also owns Krispy Kreme, Dr Pepper and Peet's Coffee, has run Coty since buying the castoff perfume business from Pfizer Inc. in 1992.

While JAB has become a consumer-goods powerhouse after a string of acquisitions, Coty's $12 billion purchase of more than 40 brands from Procter & Gamble Co. in 2016 has been problematic.

Since that deal, Coty's sales have slumped and the company has named a new chief executive and financial head. Its former chairman, a JAB senior partner, has also left both Coty and the investment firm.

Coty has said some of the former P&G brands were in worse condition than it anticipated when it agreed to buy them and suffered further as consumers shifted away from mass-market brands sold in drugstores.

However, JAB managing partner Peter Harf on Tuesday defended the deal and said integrating the business had been the major problem.

"We underestimated its complexity, we took it lightly, that's the problem," Mr. Harf said in an interview.

He said an aging population and social media could benefit hair-color products and cosmetics, and that the business is relatively resilient. Even in a tough economy, people still want to look good, he said.

Mr. Harf said JAB's plan to buy more shares in the beauty company was intended to signal that the investment firm thinks Coty's problems can be fixed under the new CEO.

"We want to show the market that we support the company and believe in management," said Mr. Harf, noting that the move also offers shareholders looking for an exit an easy out.

Coty's new chief, Pierre Laubies, is from JAB's executive stable. He previously ran Jacobs Douwe Egberts, which was created in 2014 by the combination of Mondelez International Inc.'s coffee business with a European coffee company controlled by JAB.

JAB's offer to buy more shares is contingent on the recommendation of Coty's independent directors.

Jonathan Feeney, an analyst at Consumer Edge, raised his price target on Coty stock to $14 from $10 on the news, saying he expects the board to approve the deal and the full offer to be subscribed. The move, Mr. Feeney said, gives JAB more control to cut Coty's high expenses and "shows confidence from knowledgeable insiders in existing management's plans."

JAB's focus on Coty is a relative outlier for the company, whose priorities have increasingly shifted toward food and drinks brands. Last year it agreed to pay $26 billion to buy Dr Pepper Snapple Group Inc., the No. 3 soft-drink company in the U.S. It also acquired British sandwich chain Pret A Manger Ltd. It already owns Peet's Coffee & Tea, Krispy Kreme doughnuts and Panera Bread Co., after a decadeslong acquisition spree. In late 2015, JAB took control of Keurig Green Mountain in a $13.9 billion deal that further expanded its coffee business.

--Micah Maidenberg contributed to this article.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

(END) Dow Jones Newswires

February 12, 2019 11:15 ET (16:15 GMT)

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