PG Procter and Gamble Co

By Sharon Terlep 

Cosmetics and fragrance giant Coty Inc. said it would restructure its operations and take a $3 billion write-down on the multibillion-dollar beauty business it acquired nearly three years ago from Procter & Gamble Co.

Coty, whose products include OPI nail polish and CoverGirl makeup, said Monday it struck a deal with creditors to provide enough funding to carry out a restructuring plan that will downsize staffing and product offerings while reorganizing the business into distinct geographic units.

The company, which is controlled by European investment firm JAB Ltd., has struggled with weak sales and executive turnover. Coty expects to book $600 million in restructuring costs over several years but didn't say how many jobs would be affected.

"Clearly we are under performing, we want to close the performance gap." Coty CEO Pierre Laubies said in an interview. "The way to turn around is to start quickly and build progressively."

As part of the plan, Coty will move its management to Amsterdam from London, which is closer to the company's main markets and a, "cost efficient and tax stable location," Coty said in a statement.

Job cuts will reduce costs by about $200 million a year, representing roughly 10% of Coty's fixed costs, Chief Financial Officer Pierre-André Terisse said. As of June 2018, Coty had about 20,000 full-time employees though it announced a restructuring program in August 2018.

Coty has been weighed down by the $12 billion purchase in 2016 of P&G beauty brands. The company has said the brands were in worse shape than Coty anticipated when agreeing to the deal and have continued to decline as consumers shift away from mass-market brands sold in drugstores.

The merger, completed in 2016, gave Coty more than 40 brands from P&G like CoverGirl, Max Factor and Clairol to better compete against other conglomerates.

Mr. Laubies said that despite the challenges he believes the P&G acquisition was the right move for Coty in the long run.

While Coty's luxury and professional divisions have performed solidly, the consumer beauty unit, which comprised nearly half of Coty's revenue, has continued to decline. Camillo Pane resigned abruptly last fall as chief executive and was replaced by Mr. Laubies, who previously ran European coffee company Jacobs Douwe Egberts.

Mr. Laubies said Coty needs to stop losses and cut costs before it can realistically focus on new products and growth. Immediate priorities, he said, are cost cutting, reorganizing the company's corporate structure and improving Coty brands' performance at retailers.

"Our goal right now is not to gain market share but to stop the erosion, " he said. In the near term the company will set more modest forecasts, he said.

While Coty's mass-market brands have suffered as consumers shift toward higher-end and niche brands, years of neglect and mishandling have been bigger issues, Mr. Laubies said. "Our performance is much lower" than the overall market, he said.

Wells Fargo analyst Joe Lachky said the goals seem ambitious, adding, "Coty remains a long-term turnaround story and we note that turnarounds never happen in a straight line."

JAB has run Coty since buying a perfume business sold by Pfizer Inc. in 1992. The firm moved in February to boost its Coty stake to 60% from 40% by offering to buy $1.75 billion additional shares. The move came after Coty shares had fallen sharply over the previous year.

While JAB has become a consumer-goods powerhouse after a string of acquisitions that gave it brands like Keurig Dr Pepper, Krispy Kreme and Pret a Manger, Coty's purchase of the P&G brands has been problematic. In addition to switching CEOs, a senior JAB partner resigned as Coty's chairman last year.

Write to Sharon Terlep at sharon.terlep@wsj.com

(END) Dow Jones Newswires

July 01, 2019 10:04 ET (14:04 GMT)

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