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Based in New York, NY, Coty (NYSE:COTY) scheduled a $1 billion IPO with a market capitalization of $6.7 billion at a price range mid-point of $17.50 for Thursday, June 13, 2013.

  • S-1 filed May 28, 2013
  • Manager, Joint Managers: BofA Merrill; J.P. Morgan; Morgan; Barclays; Deutsche; Wells Fargo
  • Co-Managers: Lazard; Piper Jaffray; RBC Capital; BNP PARIBAS; Credit Agricole CIB; HSBC; ING; Moelis; RBS; Sanford C. Bernstein; Santander; Ramirez; Telsey Advisory; Williams Capital Group

SUMMARY

COTY's beauty products portfolio includes very well-known names. The COTY IPO is a shareholder bailout with no proceeds going to the company.

OBSERVATIONS

COTY has a spotty financial record, in terms of sales and profits, and will be offering a dividend lower than its competition.

Revenue was flat for the March '13 nine months vs. the March '12 nine months, at $3.5 billion.

Profit did increase, however, to $230 million from $33 million after taking asset impairment charges of $210 in fiscal 2012.

For fiscal 2012 (June fiscal) COTY showed a $292 million loss in 2012 - after taking the asset impairment charge of $210 million to set up profitable quarters going into its IPO.

VALUATION

COMPARE

Mrkt

Price /

Price /

Price /

Price /

March 9 mos

Cap (mm)

Sls

Erngs

BkVlue

TanBV

Div Yield

Coty

$6,703

1.4

21.9

4.4

-3.4

0.86%

L'oreal S.A (OTCPK:LRLCF)

$106,520

3.6

27.0

3.9

6.9

1.77%

Estee Lauder (NYSE:EL)

$26,792

2.6

21.7

8.4

12.6

1.06%

Avon Products (NYSE:AVP)

$10,210

1.0

-53.2

8.7

14.5

1.02%

Glossary

Notice that COTY expects to IPO at a P/E discount relative to OR but is about the same as EL. COTY's price-to-book is about the same as OR's, but is less than EL's.

COTY plans to offer the least amount of dividend of its segment competitors, although in terms of price-to-sales COTY's ratio is less than L'oreal's or EL's.

CONCLUSION

Buy COTY on the IPO, because COTY will likely increase in price somewhat from the IPO price, because institutional investors often want to 'buy the segment'. To put the above conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced earlier:

BUSINESS

COTY believes it is a new emerging leader in beauty. Founded in Paris in 1904, Coty is a pure play beauty company with a portfolio of well-known brands that compete in the three segments in which it operates: Fragrances, Color Cosmetics and Skin & Body Care.

COTY holds the #2 global position in fragrances, the #6 global position in color cosmetics and has a strong regional presence in skin & body care.

COTY's top 10 brands, referred to as "power brands", generated 70% of net revenues in fiscal 2012 and comprise the following globally recognized brands: Adidas, Calvin Klein, Chloé, Davidoff, Marc Jacobs, OPI, philosophy, Playboy, Rimmel and Sally Hansen. Our brands compete in all key distribution channels across both prestige and mass markets and in over 130 countries and territories.

Today the business has a diversified revenue base that generated net revenues for fiscal 2012 of 53%, 31% and 16% from Fragrances, Color Cosmetics and Skin & Body Care, respectively.

Coty is the name behind the successful celebrity and designer fragrances Lady Gaga Fame, Daisy by Marc Jacobs, Sarah Jessica Parker Lovely, and Calvin Klein CK. It also owns popular beauty brands OPI nail polish, Rimmel, Sally Hansen, and philosophy.

COMPETITION

Principal global competitors include L'Oréal S.A., Avon Products, Inc., Beiersdorf AG (OTCPK:BDRFF), The Estée Lauder Companies Inc., Elizabeth Arden, Inc. (NASDAQ:RDEN), Interparfums, Inc., Kosé Corporation (OTC:KOSCF), Revlon Consumer Products Corporation (NYSE:REV) and Shiseido Co., Ltd. (OTC:SSDOF) and the beauty divisions of Unilever (NYSE:UL), LVMH Moët Hennessy Louis Vuitton (OTC:MAGOF) and The Procter & Gamble Company (NYSE:PG).

5% SHAREHOLDERS PRE-IPO

JAB Holdings B.V. 82%
Berkshire Partners LLC, 7.1%
Rhône Capital L.L.C, 7.1%

JAB Holdings B.V. is a principal investment arm of Donata Holding SE specializing in investments in companies with premium brands in the consumer goods sector. The firm is based in Haarlem, Netherlands.

DIVIDEND POLICY

COTY intends to pay an annual cash dividend at a rate initially equal to $0.15 per share of Class A common stock, as well as Class B common stock, in the second fiscal quarter of each fiscal year. $0.15 per share equates in an annual rate of 0.86%. Notice that COTY doesn't plan on paying quarterly dividends.

USE OF PROCEEDS

100% to selling shareholders

Disclaimer: This COTY IPO report is based on a reading and analysis of COTY's S-1A filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: Coty