Beauty Store Business

MAY 2016

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64 May 2016 | beautystorebusiness.com WHAT IS COTY? Coty (coty.com) is a leading beauty com- pany with net revenue of about $4.4 billion for the fiscal year that ended June 30, 2015. Founded in Paris 112 years ago, it is a pure-play beauty business with a portfolio of well-known fragrances, color cosmetics, and skin and body care products sold in more than 130 countries and territories. Its current product offer- ings include such "power brands" as adidas, Calvin Klein, Chloé, DAVIDOFF, Marc Jacobs, OPI, philosophy, Playboy, Rimmel and Sally Hansen. WHAT'S A REVERSE MORRIS TRUST? According to Investopedia (investopedia. com), a "Reverse Morris Trust is a tax- avoidance strategy, in which a corpora- tion wanting to dispose of unwanted assets can do so while avoiding taxes on any gains from those assets. The Reverse Morris Trust starts with a par- ent company looking to sell assets to a smaller external company. The parent company then creates a subsidiary, and that subsidiary and a smaller external company merge and create an unrelated company. The unrelated company then issues shares to the shareholders of the original parent company. If those share- holders control over 50% of the voting right and economic value in the unre- lated company, the Reverse Morris Trust is complete. The parent company has effectively transferred the assets, tax- free, to the smaller external company." WHAT BRANDS ARE INVOLVED? The brands included in the transaction when the deal was announced were Wella Professionals (and its sub-brands), Sebastian Professional, Clairol Profes- sional, Sassoon Professional, Nioxin, SP (System Professional), Koleston, Soft Color, Color Charm, Wellaton, Natural Instincts, Nice & Easy, VS Salonist, VS ProSeries Color, Londa/Kadus, Miss Clai- rol, L'image, Bellady, Blondor, Welloxon, Shockwaves, New Wave, Design, Sil- vikrin, Wellaflex, Forte, Wella Styling, Wella Trend, Balsam Color, Max Factor, COVERGIRL, Hugo Boss, Gucci, Lacoste, Bruno Banani, Escada, Mexx, James Bond, Gabriela Sabatini, Stella McCartney, Alexander McQueen, Dolce & Gabbana and Christina Aguilera. Transfer of certain fragrance brand licenses from P&G; to Coty are sub- ject to licensor consent. Coty confirmed Jan. 12 that 10 P&G; fragrance licenses will transfer to Coty upon regulatory approval and completion of the merger transaction: Hugo Boss, Gucci, Lacoste, Bruno Banani, Escada, Mexx, James Bond, Gabriela Sabatini, Stella McCartney and Alexander McQueen. The licensors of the Dolce & Gabbana and Christina Aguilera perfumes licenses didn't provide their consents within the specified timetable. In accordance with the transaction agreement and in the interest of staying on track with the transaction, it was agreed that these brands won't transfer upon completion of the merger. WHAT'S THE LATEST WITH REGULATORY APPROVALS? Coty announced Feb. 16 that it has received unconditional antitrust clearance from the European Commission—an important mile- stone for the transaction to proceed. Coty had already received regulatory approval from the United States and several other required countries. HOW WILL THE NEW COTY BE STRUCTURED? AND WHO WILL LEAD IT? Coty announced Nov. 3, 2015, its new organizational structure and the future leadership team for the company that will become effective when the merger is complete. The new organizational structure will be category focused, putting the consumer first by specifically targeting how and where they shop, and what and why they purchase. Each division will have full end-to-end responsibility to optimize consumers' beauty experiences in their relevant categories and channels under this new organizational design and translate that into profitable growth. Accordingly, post-merger, Coty's business will be organized into three divisions: • Coty Luxury Division, which will be focused on fragrances and skin care. • Coty Consumer Beauty Division, which will be focused on color cosmetics, retail hair coloring, styling products and body care. • Coty Professional Beauty Division, which will be focused on servicing salon owners and professionals in both hair and nail care. Each of the Luxury, Consumer Beauty and Professional Beauty Divisions will be led by a president, who will be sup- ported in the areas of supply chain, finance, human resources and informa- tion services. Edgar Huber is president of Coty Luxury, Esi Eggleston Bracey is president of Coty Consumer Beauty, and Sylvie Moreau is president of Coty Professional Beauty. An executive team consisting of the three presidents, the CEO and the functional heads will oversee the divisions. The execu- tive team will provide strategic direction, pursue merger-and-acquisition opportuni- ties, build out corporate capabilities and address public-company obligations. The executive team includes Bart Becht, who is chairman and interim CEO. Patrice de Talhouët is CFO. Camillo Pane is chief growth and digital officer. Mario Reis is chief global supply officer. Jules Kaufman is chief legal officer and sec- retary. Ralph Macchio is chief scientific officer. Sébastien Froidefond is chief human resources officer. Jean Mortier has retired, and Coty Luxury Division's Huber is now president of global markets as well. Mortier is staying with Coty through June of this year as a special adviser to the CEO. Also, Coty will be launching a depart- ment called Growth and Digital, which will be focused on accelerating growth. It will regularly review the company's port- folio strategy and focus on working with each of the three divisions to improve its capabilities in innovation, sales and tradi- tional and digital marketing. Note: Coty announced Oct. 18, 2015, that it had entered into a definitive agree- ment to acquire Beamly, a cutting-edge digital-marketing firm based in New York and London. Terms of the transaction weren't disclosed. While Beamly is continu- ing to expand campaigns across non-Coty clients, the acquisition provides a significant step change in Coty's own digital engage- ment capabilities. It continues to be led by CEO Jason Forbes, an ex-Time Warner Cable executive, and is supervised by the future Coty chief growth and digital offi- cer Pane—who was Beamly's executive vice president, category development—on behalf of Coty. In addition, Coty plans to relocate its executive management offices to London. Being operationally located in London will allow Coty to more effectively oper- ate as a global leader with closer proximity to the company's key strategic markets around the world. The company will continue to be incorporated in Delaware and traded on the New York Stock Exchange. WHO IS MOREAU? Moreau—president of the future Coty Professional Beauty Division, which will include the full Wella P&G; Salon Profes- sional hair portfolio (including the open-line Clairol Professional and Color Charm brands) and Coty's OPI nailcare brand— is the current executive vice president of Wella, the Salon Division of P&G.; When her appointment was announced Nov. 3, 2015, Becht commented, "Sylvie is the perfect leader to head the future Coty Professional Beauty Division and advance our position in the salon industry. With her 20-plus years of experience and a track record of success in leading the global Wella P&G; Salon Professional business and team, she has the right leadership skills, passion for the industry and a strong vision required to lead the Coty Profes- sional organization and its brands." When the merger with Coty closes, Moreau will transfer to Coty and her appointment will enter into effect. Until then, Moreau will remain in P&G; and con- tinue her global-leadership role in Wella. Moreau said, "I am honored and delighted to be the future leader of Coty Professional Beauty, home to the world's Image courtesy of Wella, the Salon Division of P&G; Sylvie Moreau

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