(Reuters) - Coty Inc (COTY.N) will pay about $1 billion for the beauty care unit of Brazil’s Hypermarcas SA (HYPE3.SA), beefing up distribution in one of the world’s largest consumer markets ahead of the completion of a similar deal with Procter & Gamble Co (PG.N).
Coty said on Monday the Hypermarcas purchase would provide a platform to distribute P&G products in Brazil, where demand for U.S.-made cosmetics is growing rapidly. In July, Coty agreed to pay P&G $12.5 billion for 43 brands to expand beyond perfumes.
Under Bart Becht, who was tapped as Coty’s chief executive officer in June, Coty is trying to appeal to younger consumers, shifting to areas like make-up and celebrity perfumes. Becht, known for his hunger for big deals, engineered the merger that created Reckitt Benckiser Plc.
“The deal makes sense. The region is a fast-growing market in terms of personal care... but the economy is one that has question marks over it,” said Neil Saunders, who heads research firm Conlumino.
It shares rose as much as 4 percent before easing to be up 1.8 percent to $29.47.
Becht must integrate Coty’s Brazilian acquisitions amid the country’s worst recession in a quarter century as well as record low consumer confidence and rising unemployment.
Household consumption in Brazil, Latin America’s biggest economy, fell 2.1 percent in the second quarter, the worst drop since 2001.
Coty said the Hypermarcas business it is acquiring, including the Monange shampoo and Risqué nail polish brands, generated net revenue of about $253.5 million last year. Coty plans to pay for the purchase with cash and debt.
The acquisition requires Brazilian regulatory approval.
With the deal Hypermarcas, the largest Brazilian maker of over-the-counter medicines, can focus on its core business of pharmaceuticals, CEO Claudio Bergamo said in an interview.
Proceeds will be used to repay debt, Bergamo noted. “Once the deal is concluded, we will be net debt-free,” Bergamo said. “We are definitely focusing on pharmaceuticals in Brazil, where the potential to grow is immense.”
Hypermarcas is also looking to spin off its diaper unit. A source told Reuters last month the company was in talks to sell the business to Kimberly-Clark Corp (KMB.N).
Bergamo declined to comment on the negotiations because they are ongoing.
Reporting by Yashaswini Swamynathan in Bengaluru; Additional reporting by Guillermo Parra-Bernal in São Paulo; Editing by Sriraj Kalluvila and Jeffrey Benkoe