Bloomberg Línea — Brazil’s Natura & Co (NTCO3) has agreed to sell its luxury brand Aēsop to French cosmetics giant L’Oréal in a deal worth $2.52 billion (around 13 billion reais), according to a statement to the market by both companies.
The value corresponds to the enterprise value assigned to the Australian brand.
Natura ADRs were up 15% in after-hours trading on the New York Stock Exchange on Monday.
The advance of L’Oréal to a later stage of the purchase process had been anticipated by Bloomberg News two weeks ago. At the time, however, information from sources pointed to a partial sale of the Australian brand as more likely, rather than a full one.
“The divestment of Aēsop marks a new development cycle for Natura &Co. With a strengthened financial structure and a deleveraged balance sheet, Natura &Co, exercising rigorous financial discipline, will be able to deepen the focus on its strategic priorities, notably our investment plan in Latin America,” Fabio Barbosa, Natura’s CEO, said in a statement.
“We will also be able to focus on continuing to improve The Body Shop’s business and refocus Avon International’s presence [...] We are confident that Aēsop’s growth story will continue under L’Oréal’s ownership and wish it continued success in this new chapter.”
The executive, who took the helm of the Brazilian and global cosmetics giant in June 2022, made reference to one of the main concerns of investors and analysts at the company.
“With current leverage of 7.8X net debt (excl. leases)/EBITDA (pre IFRS16), we expect net income and cash generation to remain negative in 2023. We recognize that the potential partial or full sale of the Aēsop brand could improve the company’s capital structure, giving more financial flexibility to pursue necessary adjustments across the business,” Goldman Sachs analysts Irma Sgarz, Felipe Rached and Gustavo Fratini wrote in a report last week.
“That said, we continue to see relatively high execution risk, as the company will need to address the challenges of reducing its business to levels of margin improvement and cash generation, while maintaining the necessary brand support,” Goldman analysts pointed out.
Natura shares were tradng at 13.57 reais ($2.67) at Monday’s close, down more than 50% in 12 months, although with gains above 25% in the accumulated this year.
Aēsop was part of Natura’s portfolio for 10 years, a period in which the management and investments of the Brazilian company took gross sales from $28 million to $537 million, and the number of stores from 52 in eight countries to 395 in 29 markets.