Beauty company Coty announced Monday that it is taking a majority stake in Kylie Cosmetics, and will look to expand the brand globally and into new beauty categories.
The deal gives Coty a 51% stake in the makeup company for $600 million. Kylie Jenner, the 22-year-old founder of the makeup company and member of the Kardashian-Jenner family, owns the remainder of the company.
Jenner and her team will continue to lead the company's creative efforts related to products and communications.
"We are pleased to welcome Kylie into our organization and family," said Coty CEO Pierre Laubies. "Combining Kylie's creative vision and unparalleled consumer interest with Coty's expertise and leadership in prestige beauty products is an exciting next step in our transformation and will leverage our core strengths around fragrances, cosmetics and skincare, allowing Kylie's brands to reach their full potential."
The deal is expected to close in the third quarter of fiscal 2020.
Coty declined to provide additional detail on its strategy, saying it was too soon to discuss.
In premarket trading Monday, Coty's stock initially jumped as much as 6%. However, shares were up about 1% by midday. The stock has a market value of about $9.1 billion, and it has gained 83% since the start of the year.
Coty is no stranger to beauty brand acquisitions. The company agreed to buy Proctor & Gamble's beauty brands in October 2016 for $12.5 billion. But it struggled to integrate the acquisition, which included Max Factor makeup, Clairol and Wella hair products and cosmetics brand CoverGirl. Coty's stock fell 67% last year, but investors are expecting a turnaround under new management. The company welcomed Laubies as CEO and made changes to the board last year. Since arriving, Laubies has been looking to unload underperforming brands such as its hair care and professional beauty business.
But new deals apparently aren't off the table. Coty is valuing Jenner's fragrance and cosmetics company at $1.2 billion.
Jenner launched her brand in November 2015 with the Kylie Lip Kit, which included a liquid lipstick and lip pencil that both immediately sold out after their releases. Her list of products has grown ever since with makeup retailers like Ulta bringing Kylie Cosmetics items to its stores. All of the beauty categories will continue to be sold through beauty retailers and digital channels under the new partnership, Coty said.
"I'm excited to partner with Coty to continue to reach even more fans of Kylie Cosmetics and Kylie Skin around the world," Jenner said, in a statement. "I look forward to continuing the creativity and ingenuity for each collection that consumers have come to expect and engaging with my fans across social media. This partnership will allow me and my team to stay focused on the creation and development of each product while building the brand into an international beauty powerhouse."
The acquisition is not totally surprising as Coty has few brands in its portfolio that focus on prestige skincare and color, said Linda Bolton Weiser, analyst at D.A. Davidson. She added that this could be the "first of several acquisitions they could do in prestige color cosmetics."
The valuation Coty has placed on Kylie Cosmetics, Bolton Weiser said, is high.
Estee Lauder announced Monday it is acquiring Have & Be, a Korean-based skin care company valued at about $1.7 billion. The skin care company is expected to reach more than $500 million in net sales in 2019, Estee Lauder said, meaning it is valued at 3.4 times that.
Kylie Cosmetics saw an estimated $177 million in net revenues for the trailing twelve months, which means its valuation is more than 6 times that. This stark difference in valuation is noticeable especially because skin care companies tend to reap a higher valuation since products in the category reap higher profit margins and attract greater brand loyalty, Bolton Weiser said.
Coty has a history of working with celebrities. The company has engaged in fragrance partnerships with musical artists Lady Gaga, Beyonce and Gwen Stefani.
Buying a brand that is based on a person is risky because the person may change over time, Bolton Weiser added.
"Some people would argue that names and brands based on people are weaker brands over the very long term," Bolton Weiser said, adding that Bobbi Brown is one of Estee Lauder's weaker brands. "Sometimes the brand can't outlive the person."
Estee Lauder's stock gained less than 1% on the heels of its deal. The stock, which has a market value of $69.3 billion, has risen 48% since the year started.