Coty scents fresh appetite for IPO

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Coty, the beauty products company that failed to buy Avon for $10.7bn last year, is making a renewed effort to launch an initial public offering in what would be the largest float by a US consumer retail business since Michael Kors outlet listed in 2011.

Coty would attempt to raise $700m as early as next month as it taps investor appetite for new US listings at a time when the S&P 500 has pushed into record territory, people close to the situation said. Coty declined to comment.

The move comes after a series of setbacks for Coty, which has annual sales of $4.6bn from fragrance licences to luxury houses Bottega Veneta and Calvin Klein and some of the world’s biggest celebrities, including David Beckham and Beyonce.

Despite the public backing of Warren Buffett’s Berkshire Hathaway, Coty, which is 82 per cent-owned by Joh. A Benckiser, the holding company for Germany’s Reimann family, abandoned its bid for Avon last May after the cosmetics direct seller repeatedly rejected its overtures.

Coty had lined up financing from Berkshire Hathaway and JPMorgan.

In the subsequent months, the company endured a tumultuous period marked by management upheaval, a postponed IPO and large writedowns on the value of two acquisitions made in 2010.

Bernd Beetz, who built the company into one of the top cosmetic companies in the world, unexpectedly retired as chief executive and was replaced by Michele Scannavini, a Coty executive and former head of Fila sportswear.

Weeks after Mr Scannavini took the helm, Coty blamed a sluggish IPO market and management changes for its decision to postpone its flotation.

But in a series of securities filings, Coty then revealed $573m in writedowns linked to its $352m purchase of TJoy, a China-based skincare group, and its $930m acquisition of Philosophy, a skin-product brand.

The impairments swung Coty to a $324m net loss for fiscal year 2012, a stark reversal from the $61.7m net profit it had made in each of the two years before.

One person familiar with the deals said Coty did insufficient due diligence before making those purchases and called both acquisitions “bad apples”.

The renewed IPO attempt comes as net profits at the company appear to have improved. In the six months to December 31, Coty reported income of $210m, up 5.8 per cent from the same period a year before.

A successful listing will provide an exit for the Benckiser group and minority shareholders including Boston-based private equity group Berkshire Partners and Rhone Group.

Mr Beetz, who has remained on the company’s board, controls 3.7 per cent of Coty’s shares. He received total compensation of $56m in his two final years as chief executive and was entitled to a $44m payout upon his retirement, according to filings.

Michael Kors Handbags raised $1.1bn from its 2011 IPO.

Bank of America Merrill Lynch, JPMorgan Chase and Morgan Stanley are leading the share offering.

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