By Ashutosh Pandey
June 13 Shares of perfume and beauty products
seller Coty Inc fell more than 3 percent in their
market debut on Thursday, taking the gloss off the third-largest
U.S. IPO this year.
There had been concerns ahead of the IPO that Coty was too
dependent on the U.S. and European markets and that its
mass-appeal products exposed it to swings in discretionary
The company gets most of its revenue from perfume brands
including Calvin Klein, Davidoff and Playboy as well as those it
sells under the names of celebrities such as Beyonce Knowles,
Lady Gaga and Jennifer Lopez.
Coty's sales were flat in the first three quarters of 2013,
largely because of its lack of skin-care products, a market
segment that is growing faster than fragrances.
The company's shares, which were priced at $17.50 on
Wednesday, fell as much as 3.4 percent to $16.90 in morning
trading on the New York Stock Exchange.
They were priced at the mid-point of the expected range,
raising about $1 billion and valuing the New York-based company
at about $6.70 billion.
"I hear the allocations to the retail side was very small
... As there was heavy institutional interest and it was filled
so there were no after-market orders," said John Fitzgibbon, the
founder of IPOscoop.com.
Coty, founded in 1904 by Francois Coty in Paris, filed to go
public in June 2012 after dropping a $10.7 billion takeover bid
for larger peer Avon Products Inc.
Apart from failing to capitalize on the recent surge in the
demand for luxury beauty products, analysts said Coty has let
rivals such as Avon and Estée Lauder Cos Inc beat it to
fast-growing markets in Asia and Latin America.
While Coty has made a number of deals in recent years to
expand into overseas markets such as China and bolster its
skin-care offerings, its chief executive told Reuters that
dealmaking was not essential.
"We have enough tools to grow organically in all the
segments," CEO Michele Scannavini said in an interview on
"We do not need acquisitions to foster our growth," he said,
adding that there were no plans for a "transformational" deal.
Coty did not receive any proceeds from the offering as all
of the shares were sold by selling shareholders, including the
billionaire Reimann family of Germany.
Joh A Benckiser GmbH, the investment vehicle for the Reimann
family, sold about 76 percent of the Class A shares in the IPO
for proceeds of $762 million.
The group will continue to hold 269.9 million Class B shares
after the offering, giving it 85 percent of the total voting
power in the company.
Minority owners Boston-based Berkshire Partners LLC and
private equity firm Rhone Capital also sold about $119 million
worth of shares each in the IPO, diluting their voting power in
Coty to 6.4 percent, according to the company's IPO filing.
"It was a shareholder bailout on the IPO," said Francis
Gaskins, a partner at IPO research company IPODesktop.com.
"The message they have sent to investors, therefore, is that
they do not want to be accountable to investors, and investors
do not like that attitude," he said.
According to Coty's dual class share structure, each Class B
share is entitled to 10 votes while each Class A share has only
a single vote. The Class B shares, retained by owners and early
investors, were not offered to the public.
In its prospectus, Coty warned potential investors that
because it would be a controlled company, it would not have to
comply with some of the New York Stock Exchange's corporate
governance requirements including one that calls for most
directors to be independent.
The company went public at a time when large offerings from
U.S. consumer companies have virtually dried up. Only five have
listed this year, according to Thomson Reuters data.
"The company has the bad luck going public after two weeks
of market decline in the United States," said Jay Ritter, a
University of Florida IPO expert.
"Also, the company is fairly priced to give it a valuation
of $6.70 billion plus $2.50 billion in debt," he said.
The Coty IPO is the third-largest in the United States this
year after Pfizer's animal health unit Zoetis Inc and
financial services provider ING US Inc.
It was also the biggest offering by a consumer products
company since luxury accessories maker Michael Kors Holdings
Ltd's $944 million IPO in December 2011.
J.P. Morgan, BofA Merrill Lynch and Morgan Stanley are the
lead underwriters to the Coty IPO.
Coty shares were down 1 percent at $17.32 in afternoon
trading. The stock was the most traded on the NYSE, with about
21 million shares changing hands.