Coty Inc. (COTY) is finally closing the book on Wella. The beauty company announced Friday it's selling its remaining 25.8% stake in the professional hair care business to KKR & Co. Inc. (KKR)-managed accounts and affiliates, and investors seemed to like the news—shares climbed in premarket trading.
The deal structure is interesting: Coty gets $750 million in cash upfront, plus 45% of whatever KKR makes if they eventually sell Wella or take it public (after KKR gets its preferred return first, of course). Given how well Wella has been performing and where market valuations are sitting, Coty expects the total proceeds could approach what the investment was worth on its books. Not a bad outcome for a business they've been systematically exiting.
So what's Coty doing with three-quarters of a billion dollars? Paying down debt, mostly. After taxes, the bulk of the Wella cash is earmarked for reducing both short-term and long-term obligations. Combine that with the company's strong free cash flow—over $350 million in the first half of fiscal 2026—and Coty expects to bring its net leverage down to around 3x by the end of 2025. That's a meaningful deleveraging move.
Strategic Exit Complete
CFO Laurent Mercier seemed pleased with how the KKR partnership has played out. "Our strategic partnership with KKR has proven highly value accretive," he said. "We have benefited from Wella's strong growth by progressively monetizing our stake, allowing us to strengthen Coty's financial foundations year after year."
He added that completing the transaction right on schedule—hitting their original target to fully divest Wella by the end of calendar year 2025—"underscores our focus on delivering on our financial commitments and crystallizing value from non-core assets, all while sharpening our strategic focus." Translation: Wella was a distraction, and now Coty can focus entirely on its core beauty brands.
Recent Performance
The debt reduction is particularly timely given Coty's recent earnings picture. Back in November, the company reported first-quarter adjusted earnings per share of 12 cents, missing the 15-cent consensus, though revenue of $1.577 billion came in right where analysts expected.
Management is expecting gradual improvement through fiscal 2026. Second-quarter like-for-like sales are likely to land at the high end of the -3% to -5% range, driven by the Prestige and Consumer Beauty segments. The company is also getting a low-to-mid single-digit boost from favorable foreign exchange moves. Looking further ahead, Coty forecasts actual like-for-like growth in the second half of fiscal 2026, supported by major product launches in the Prestige category and easier year-over-year comparisons.
COTY Price Action: Coty shares were up 0.92% at $3.28 during premarket trading on Friday.