P&G brand sales, restructuring will cut jobs up to 19%
Procter & Gamble's employment will shrink to the lowest levels in at least 14 years, once a $15 billion divestiture of beauty brands closes and an ongoing restructuring ends.
The 43 beauty brands carved off in a deal Thursday will go into a separate company that will be merged with New York-based P&G rival Coty Inc.P&G officials say the transaction mostly completes the process of identifying and selling brands that don't fit with the company's future..
The deal will affect 10,000 workers worldwide – at least 8 percent of its entire workforce, including about 1,500 in the U.S. and 200 in Greater Cincinnati. The transaction, expected to close in late 2016, will also transfer ownership of eight factories and nine distribution centers, including three U.S. facilities.
Moving the beauty brand jobs from P&G's payroll comes on top of P&G's other brand sales and the restructuring, which was announced in 2012. All told, the company will cut 20,000 to 23,000 total positions from its 118,000 head count disclosed last August – a reduction of 16.7 to 19.5 percent over three years.
The cuts will leave the Downtown Cincinnati-based consumer products giants at 95,000 to 98,000 jobs by mid 2017. The last time P&G's workforce numbered below 100,000 was in 2003, when the company's head count was 98,000. If P&G cuts jobs down to 95,000, it would make the payroll the lowest since 1991.
Finally, the brand sales taken together remove many obscure products from P&G's portfolio, as well as better known names such as Camay soap, Eukanuba pet food and Zest soap .
Company cuts beauty unit by nearly a third
P&G's latest transaction, when it closes in late 2016, will transfer the company's cosmetics, hair coloring and fragrance brands that command $5.9 billion in combined annual sales to Coty. Coty produces Rimmel cosmetics and Calvin Klein perfume. The deal will more than double Coty's revenues, making it a beauty player with more than $10 billion in annual sales.
The deal includes CoverGirl and Max Factor cosmetics brands; Wella, Clairol and Nice 'n Easy hair coloring; and licensed fragrances, such as Hugo Boss, Dolce & Gabbana and Gucci.
P&G shareholders will also become majority owners of Coty with 52 percent of the super-sized Coty.
The divestiture is the largest so far in P&G CEO A.G. Lafley's brand shedding campaign unveiled 11 months ago. Lafley is in the midst of selling or exiting up to 100 brands to refocus the company to 65 core labels that are faster growing. Since last August, the company has made deals to cut more than 90 brands, which have combined annual sales of more than $10.1 billion.
"This represents a significant step forward in the work to focus our portfolio on 10 categories and 65 brands that best leverage P&G's core competencies," Lafley said Thursday in a release.
The deal will radically simplify P&G's nearly $20 billion beauty business that Lafley helped create. It will reduce the business to roughly $14 billion in annual sales and leaving it much more focused on hair and skin care sold at mass retailers. P&G's remaining beauty business will be anchored by Pantene and Head & Shoulders shampoos and Olay and SKII skin care brands. Together, these brands command more than $9 billion in annual sales.
Deal slices worldwide factories and workforce
The deal will significantly reduce P&G's manufacturing footprint in Europe with seven out of 45 factories transferring to Coty. One U.S. plant in Maryland is also part of the deal.
P&G officials declined to update the company's employee count, which the company said in August was 118,000 as of June 2014. P&G later closed on its pet food sale that removed 1,100 jobs and has announced the Duracell sale to Warren Buffett's Berkshire Hathaway, removing 2,700 jobs. Meanwhile, the company has also given separation packages to 3,100 office and manufacturing workers. In April, P&G executives also outlined plans to reduce another 3,000 to 6,000 office jobs by mid 2017.
Once all deals close, P&G will have 24 U.S. factories. The company currently has 29 factories in the U.S. and is building a new one in West Virginia. But it is selling four factories and closing two others in Augusta, Georgia and Cayey, Puerto Rico.
Worldwide, all the transactions will further reduce P&G's factory count. The court was roughly 135 in June 2014 but had dropped to about 115 by December 2016.
Up until now, P&G's largest divestiture had been the plan to sell off Duracell batteries, which does about $2.6 billion in annual revenue, to Warren Buffett's Berkshire Hathaway later this year. The next largest divestiture was last year's sale of Iams and other pet foods that did a a combined $1.6 billion in annual sales.
Coty wins bid and gets new shareholders
Coty's initial offer for P&G's beauty brands was valued at $12.5 billion, but the New York company's stock has jumped since unconfirmed news reports in mid June said it had won the bidding. The deal also includes Coty assuming $1.9 billion in P&G debt.
Lafley's goal is to restore consistent profit and sales growth by making it more focused, streamlined and easier to run
Thursday's deal also included these brands:
Sebastian Professional, Sassoon Professional, Nioxin, SP (System Professional), Koleston, Soft Color, Color Charm, Wellaton, Natural Instincts, VS Salonist, VS ProSeries Color, Londa/Kadus, Miss Clairol, L'image, Bellady, Blondor, Welloxon, Shockwaves, New Wave, Design, Silvikrin, Wellaflex, Forte, Balsam Color, Lacoste, bruno banani, Christina Aguilera, Escada, Gabriela Sabatini, James Bond 007, Mexx, Stella McCartney and Alexander McQueen.
P&G will either spin or split off the beauty brands in a transaction that will generate a $5 billion to $7 billion one-time gain with minimum tax impacts for P&G.
P&G indicated it will share the proceeds with stockholders by stepping up stock repurchases and dividend payments. It said it will return $70 billion to shareholders over the next four years.
That suggests $17.5 billion in stock buybacks and dividend payments annually – a 35.7 percent increase over the $12.9 billion returned to shareholders in fiscal year 2014, where P&G paid $6.9 billion in dividends and repurchased $6 billion in stock.
The outlines of the deal are similar to how P&G spun off Folgers coffee to J.M. Smucker Co. in 2012 as well as Jif peanut butter and Crisco shortening to Smucker's in 2002. The deal helps P&G avoid a massive tax bill as it refocuses it beauty business.
Yet to be worked out is whether the transaction will be structured as a split-off – which P&G prefers – or spin-off. Under each type of transaction, the outgoing beauty brands will be carved out into a separate company that would merge with Coty. Under a split off, P&G shareholders would be offered the chance to trade all, some or none of their P&G shares for new Coty shares. Under a spin-off, P&G shareholders would be automatically be issued new Coty shares.
P&G shares closed at $80.66, down 33 cents on Thursday.