European authorities give Coty the go ahead for acquisition of P&G brands

17-Feb-2016 - Last updated on 17-Feb-2016 at 17:00 GMT

Coty has moved one step closer to completing the acquisition of a large slice of the Procter & Gamble’s beauty brands after European Commission gave its approval for the deal under the EU Merger Regulation.

Questions have been raised in both Europe and the US over the validity of the acquisition, which originally targeteted 43 beauty brands with a price tag of $12.5 billion.

In Europe there had initially been concerns that the acquisition would reduce competition and lead to higher prices for these consumer goods in Europe, in particular for fragrances and colour cosmetics.

However following an investigation, the Commission concluded that “strong independent players would remain active in all the concerned markets.”

Obtaining the European Commission approval on this deal represents an important milestone for the transaction to proceed, with it already receiving regulatory approval in the US and several other required countries.

Moderate market share

The main areas of contention over the proposed merger were regarding the fragrance and colour cosmetics brands, as Coty is not currently active in the hair sector, so thus will not grow significantly or unfairly in this field.

In Fragrance, Coty already has a strong foundation as a leading player with popular brands such as Calvin Klein and Marc Jacobs and was adding the Alexander McQueen, Bruno Banani, Escada, Gabriela Sabatini, Gucci, Hugo Boss, James Bond 007, Lacoste, Mexx, and Stella McCartney brands from P&G.

Other companies that were considered as rivals that could be affected included Avon, L'Oréal, LVMH, Puig, and Unilever; but the Commission found that the combined market shares would remain low to moderate in all affected markets, and that consumers will continue to have a large array of choices in fragrances from competitors.

The other big area in the European investigation was over colour cosmetics as Coty currently manages the Rimmel and OPI brands, among others, and was adding Max Factor from P&G.

Rivals such as Cosnova and L’Oréal stood to be the most affected, but again the Commission deemed Coty’s market share would remain moderate and that there would still be a large choice of products from competitors.

It adds that Coty's brands and Max Factor are not very close competitors, and that competition in these markets would remain sufficiently strong to prevent price increases for European consumers.

Questions still remain in the US

So far the acquisition of the brands has gone largely to plan for the company in the US. Last month Coty confirmed that it had acquired ten fragrance brands from P&G, but conceded that two of the brands in the original deal had opted out.

The licensor of Dolce & Gabbana nor Christina Aguilera perfumes did not give the necessary permission for the brand licences to be transferred, which meant that Hugo Boss, Gucci, Lacoste, Bruno Banani, Escada, Mexx, James Bond, Gabriela Sabatini, Stella McCartney, and Alexander McQueen are now under Coty ownership.

Further questions have been raised over the final steps of the acquisition approval in the US, which is due to be completed in the second half of 2016.

Some industry observers have pointed to a tightening in competition laws in the US, which may raise the bar on the requirements for approval by the relevant authorities.