Coty to Acquire Skin-care Maker Philosophy

Coty to Acquire Skin-care Maker Philosophy

Coty Inc. announced that it agreed to purchase beauty company Philosophy from private-equity firm Carlyle Group.

Coty said in a statement that the transaction, subject to regulatory approvals, is expected to close in December 2010. Terms of the purchase weren't disclosed. But people familiar with the matter valued the deal at around $1 billion.

The acquisition will give the well-known fragrance maker a major foothold in skin care, where Philosophy, popular with women across a wide range of ages, is best known for its lotions, bubble bath and facial products.

Philosophy, which was founded in 1996 by entrepreneur Cristina Carlino, drew a loyal following with its rich fragrances and whimsical poems that adorn its bottles and jars.

Philosophy is sold in specialty chains and department stores and the QVC home-shopping network. Philosophy's revenue this year is expected to be more than $200 million according to a person familiar with the matter.

Coty, with annual sales of $3.6 billion, has been an active acquirer of beauty brands lately, buying German cosmetics firm Dr. Scheller Cosmetics AG about a week ago. Coty also is the leading contender to buy nail-polish maker OPI Products Inc., according to people familiar with the deal.

Closely held Coty, based in New York, makes fragrances for brands including Calvin Klein, Vera Wang and Stetson and calls itself the world's largest fragrance company.

Sales of fragrances have slowed in recent years and were particularly hit during the recession as cash-strapped shoppers opted to replenish their makeup and skin-care products instead of splurging on new perfumes.

Coty has been determined to diversify its business to other beauty categories, mostly through acquisitions. "We want three pillars: fragrance, color cosmetics and skin care," said Coty CEO Bernd Beetz. "This is the way we are building up our business."

The deal marks one of the biggest in Coty's 106-year history. In 2007, the firm purchased DLI Holding for about $800 million, which included top-selling nail polish brand Sally Hansen and cosmetics line NYC New York Color.

Carlyle has expanded Philosophy's distribution since buying it in 2007, including ramping up sales online, specialty stores and department stores.

Coty, which garners most of its sales in Europe, has broad aspirations for the brand. "We are eager to expand Philosophy globally," said Mr. Beetz, noting Philosophy is sold almost entirely in the U.S. Mr. Beetz is also eager to capitalize on Philosophy's strong sales on QVC.

The Philosophy line easily lends itself to on-air storytelling, a crucial factor in snagging viewers and, ultimately, buyers. Most of Philosophy's products come in bottles and jars plastered with inspiring phrases often penned by Ms. Carlino, the founder. A moisturizer dubbed "Hope in a Jar," includes the phrase "Where there is hope there can be faith. Where there is faith miracles can occur."

Ms. Carlino, who currently serves as a brand spokeswoman on QVC but isn't involved in day-to-day operations, is expected to stay on at least through the end of her contract next year, according to a person familiar with the matter.

"We have been very successful in doing acquisitions in the past, and a key element has always been that we maintain the continuity of leadership," said Mr. Beetz. "I expect this to be the same thing," he says.

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