Our Plan of Action
Procter & Gamble continues to divest itself of some of their smaller brands in order to focus better on their core businesses. The current exchange offer includes P&G’s global fine fragrances, salon professional, cosmetics and retail hair color businesses, along with select hair styling brands (collectively referred to as “P&G Specialty Beauty Brands”).
The details of the exchange are somewhat complex, but the bottom line is that if you opt to exchange your P&G shares, you will receive about 3.9 shares of Coty, Inc. for each of your P&G shares. Because of the way Procter & Gamble has structured the exchange, there should be no tax consequences.
We are declining the offer on your behalf for the accounts we manage. Coty Inc. does not meet our criteria for stocks we would select for your accounts. For P&G stock that we do not manage, you do not need to take any action to decline the offer. You only need to respond if you choose to exchange your shares of P&G for Coty Inc.
If this seems confusing, you may remember the spinoffs of J.M. Smuckers and Folgers Coffee. This exchange is very similar. If you would like to discuss the exchange in further detail, please feel free to contact us.
What follows is a simplified description of the exchange details. If you want to understand the exchange offer in more detail, continue reading.
In order to keep the divestiture of “P&G Specialty Beauty Brands” a tax free event, P&G will first spinoff a new company under the name Galleria Co. This new company will be owned by Procter & Gamble. P&G shareholders will be given an opportunity to exchange some or all of their shares of P&G stock for shares of Galleria Co. Once the spinoff of Galleria Co. is complete, Coty Inc. (COTY) will merge with Galleria Co. Those P&G shareholders who opted to exchange their P&G stock will have their new Galleria Co. converted into (up to a maximum of 3.9033 shares) of Coty Class A stock (COTY).
Let’s say you own one share of P&G stock and you want to take the offer and exchange it for Coty stock. If the average value of P&G is $88 when the exchange occurs, you will be allotted 1.075 times its’ value in Galleria Co. This works out to $94.60 (88 x 1.075) of Galleria Co. If the average value of Coty stock is $24.5 when the exchange occurs, you will receive $94.6/$24.5 or 3.86 shares of Coty stock.
Keep in mind, this is a very simplified version of the exchange offer. All of the exact math and stock valuations can be found at http://www.dfking.com/pg/.
This article first appeared on PersonalChoiceFinancial.com. Personal Choice Financial Advisors, LLC specialize in working with Procter & Gamble employees and retirees. All rights reserved.