Coty's Diverging Signals

Full Restructuring or Splitting or Going Private?

The Investment Paradox: TLDR;

The prevailing market narrative surrounding Coty Inc. in December 2025 is one of fatigue. After nearly a decade of restructuring, management turnover, and strategic pivots following the 2016 acquisition of Procter & Gamble’s Speciality Beauty business, the equity trades as a perpetually distressed option on a turnaround that never quite arrives.

These are the diverging signals we are capturing:

Structural Value Destruction

The reconstruction of the 2016 P&G merger confirms it as one of the most destructive M&A transactions in the consumer staples sector of the last decade. The bridge from the $12.5 billion purchase price to the current ~$6 billion Enterprise Value reveals that effectively 100% of the equity value assigned to the “Galleria” assets (CoverGirl, Max Factor, Clairol) has been incinerated through goodwill impairments totaling over $7.6 billion between 2019 and 2020 The Consumer Beauty division has deteriorated from a mid-single-digit decliner under P&G to a double-digit decliner under Coty (-12% in Q4 FY25), behaving like a “melting ice cube” rather than a turnaround candidate.

The Wella Deal “Hollow Victory”

The December 2025 sale of Wella's remaining 25.8% stake to KKR for $750 million is a liquidity event, not a value creation event. Our review of the deal terms shows that the claimed “contingent upside” is structurally subordinated to KKR’s preferred return hurdles, which are probably around a 20% IRR plus a 9% coupon on the initial capital.

Considering the valuation reset implied by the $750 million price tag compared to a ~$1 billion carrying value, the likelihood that the contingent stake will realise value is virtually zero. Although the proceeds address the 2026 maturity hurdle, the company remains over-leveraged at approximately 3.2x Net Debt/EBITDA, with a more significant maturity challenge expected in 2029.

The JAB “Take-Under” Arbitrage

While the fundamental bearishness is justified, another variable to consider is that JAB controls ~60% of the equity and has historically been aggressive in taking distressed assets private to restructure them out of public scrutiny (e.g., Keurig, Krispy Kreme).

With Coty trading near $3.00, JAB can acquire the remaining float for ~$1.4 billion—a fraction of their sunk cost. This creates a “Take-Under” dynamic where the likely exit for minority shareholders is a privatisation offer at a 30-40% premium ($4.00-$4.20), rather than a drift to zero.

The Strobel Misalignment

The appointment of Markus Strobel (ex-P&G SK-II) as CEO is a signal of a potential breakup. Strobel’s expertise is in super-premium brand building, a skillset antithetical to the mass-market volume game required to fix CoverGirl. This mismatch suggests his mandate may be to prepare the Prestige division for a standalone future while divesting the Consumer Beauty “bad bank” assets, similar to Unilever's recent Elida Beauty sale.