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Jul 16, 2015
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Becht to lead Coty/P&G beauty merger despite industry doubts

Jul 16, 2015

Coty Inc's boss Bart Becht believes he is the right man to run what will become the world's biggest perfume maker, despite industry doubts over its planned mega-merger and faltering sales at the beauty products group.

With Coty due to gobble up Procter & Gamble's beauty business for $12.5 billion, Becht has no intention of seeking anyone else to lead the expanded group where he is both chairman and chief executive following a series of high-level departures.

"As you know, there has been a lot of changes at Coty over the past 12 to 18 months ... so the board asked me to stay to oversee the transaction," Becht told Reuters after the P&G deal was announced last week.

The 58-year-old Dutchman said it was possible the group, founded in Paris and New York-based, could hire a new leader in the future but there was no time frame for that now.

Becht, who jointly runs a Luxembourg holding company that is Coty's biggest shareholder, knows how to merge big businesses. He tied up Dutch-based Benckiser with Britain's Reckitt & Colman in 1999 and ran the combined chemicals and consumer goods group for more than a decade.

Under him, Reckitt Benckiser grew in value from 3 billion to 23.5 billion pounds, helped by two major acquisitions. Its shares rose more than four-fold over a decade.

Coty, the maker of Calvin Klein and Chloe perfumes, has at times proved a tougher proposition since Becht became chairman in 2011 to prepare for a stock market flotation. After its New York debut in 2013, the share price stagnated and at times was significantly lower until late autumn last year.

Still, Becht's cuts to marketing departments and expenses in general lifted profits, and the stock eventually responded. It rose more than 60 percent in the eight months to June, when news broke that the P&G deal was afoot.

But since peaking at $32 in early July just before the merger was officially announced, it has lost 15 percent as the forecast earnings boost was smaller than expected and investors were concerned the deal would take more than a year to complete.


While Becht is known in the industry for his cost-cutting abilities, he has a stronger record in managing fast-moving consumer goods such as Woolite soap than high-end perfumes.

"Becht is a numbers man, an efficient operator and a great deal-maker but he is not a person with a particularly strong luxury sensitivity," said one former se

nior Coty manager who worked with him for several years.

Under Becht, who is personally Coty's seventh biggest shareholder, the group has become one of the industry's worst performers in terms of sales. These fell 2.1 percent in the year to June 30, 2014 while Estee Lauder's revenue grew 8 percent in the same period and L'Oreal's like-for-like sales rose 3.7 percent in calendar 2014.

Becht has also made pay-offs to three chief executives - two who departed and one who never arrived. A week before frozen foods manager Elio Leoni Sceti was due to start on July 1, Becht told him not to come, allowing the Dutchman to handle the merger in both top jobs. Sceti got $1.75 million in compensation.

Coty, which was once associated with the early 20th century inventor of modern perfumery Francois Coty, highlights the dangers of putting profits before creativity and innovation - a recipe for disaster in terms of sales growth.

Some analysts say the future looks difficult. "Valuation could decline if Coty does not improve organic sales growth in the base business ... and CEO Bart Becht did not offer solid arguments why, and in what timeframe, this deal would enhance organic sales growth," said Linda Bolton Weiser at broker B. Riley & Co.

Weiser, who kept a "sell" rating on Coty stock, cited uncertainty over how long Becht would stay and whether the company could eventually find a super-star to manage this "beauty beast" - the P&G deal will double Coty's size, creating a group with more than $10 billion in annual sales.

Coty, which makes Rimmel mascara, will run P&G's make-up brands Cover Girl and Max Factor as well as its perfume licenses with fashion brands Gucci, Hugo Boss and Dolce & Gabbana. It will also enter a new category with P&G's Wella and Clairol hair treatment brands.


Many of Coty's big perfume brands such as Calvin Klein have lost market share and quarterly revenue has either fallen or stagnated for more than two years.

P&G's beauty businesses have performed little better. This year, sales of its fragrance brands are down and make-up brands flat, while its hair business is modestly growing, sources close to the deal said. Coty and P&G declined to confirm the trends.

Foto: DR

Becht said the merger would not create growth overnight but would generate $550 million in savings and boost future profits and earnings per share - on which his long-term incentive plan is based.

After waves of job losses, Coty employees fear further cuts once the deal goes through, according to people at the company. Restructuring has created a climate of fear "which is not very good for creativity", said one person still at Coty.

This worries analysts. "One of my concerns is how Coty will retain and attract talent," said Mark Astrachan, analyst at broker Stifel.

Bernd Beetz, who led Coty for 11 years, departed as CEO less than a year after Becht arrived. Beetz was known for empowering staff, making them take risks and come up with innovative marketing campaigns and products, former and current Coty managers said, declining to be named.

"When Beetz left, the whole company was in mourning," said a former top Coty executive who left for a rival firm.

Beetz's successor Michele Scannavini also left in September last year, putting Becht firmly in the executive seat. Recent casualties have included the chief marketing officer and fragrance marketing director.

Renato Semerari, president of categories and innovation, quit Coty and now heads Italian fashion brand Roberto Cavalli.

Becht acknowledges he focused too hard on short-term profits after the IPO. "Yes, I agree," he told Reuters last month. "But we restored profitability by cutting non-strategic cost and now we have the flexibility to reinvest back into the business."


Last year Becht merged Coty's mass and prestige divisions although they have different objectives: one to give consumers value for money, the other to sell a dream in a bottle.

Becht believes in the fast-moving consumer goods model which worked at Reckitt, involving high volumes, low cost and reasonable margins. This may not work for high-end cosmetics, analysts say, where shops are more carefully selected to protect image, limiting volumes. Also, marketing costs are higher but so are prices and margins.

Coty does not fully exploit its heritage, unlike many other luxury brands. For example, Henri Coty, grandson of the company's founder, failed to persuade Coty to re-launch historic perfumes such as L'Origan.

Francois Coty, a descendant of Napoleon, was one of France's richest men who owned Figaro newspaper and made his fortune in building fragrance factories, flower fields and collaborating with crystal bottle makers such as Baccarat and glass designer Rene Lalique.


Becht is one of three people who run JAB Holdings, the firm that manages the fortune of the German billionaire Reimann family, inherited from Benckiser. JAB owns 75 percent of Coty and will hold a third of the enlarged business, with P&G shareholders taking 52 percent.

"For me, part of the problem is that JAB has been meddling too much with Coty's business," said one of the merger's many advisers.

JAB has a checkered history with creative types. Shortly after it bought Jimmy Choo in 2011, it parted ways with Tamara Mellon, who was the soul of its fashion success.

Several of JAB's luxury brands are struggling. British jacket brand Belstaff has not stopped haemorrhaging cash since JAB bought the firm in 2011. When it will become profitable remains unclear, industry sources close to JAB said. Swiss leather goods brand Bally is just starting to turn itself around about eight years after being acquired by JAB.

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