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Coty Expands Kardashian Empire Tie-Ups With $200 Million Bet

Gerald Porter Jr. and Thomas Mulier

(Bloomberg) -- Coty Inc., rushing to lift its fortunes after a tough start to the year, is doubling down on the Kardashians.

The owner of Max Factor and Covergirl agreed on Monday to buy a 20% stake in Kim Kardashian West’s beauty business for $200 million. The company’s plan to develop skin, hair and nail products under the reality TV star’s brand comes just months after Coty inked a $600 million deal with her sister, Kylie Jenner.

The back-to-back tie-ups with members of the same empire are intended to rekindle sales growth and drive e-commerce at Coty, which took a $3 billion writedown last summer in a stunning admission that many of its mass-market brands are out of touch. The question for investors now is whether Coty can strike gold twice with the Hollywood family, repeating the rapid success of Jenner’s cosmetics portfolio with Kardashian West’s smaller line.

Coty, whose shares were down 63% this year before the announcement, rose as much as 15% in New York trading Monday.

‘Smart Deal’

Coty’s move to up the ante with one of the world’s most famous families is “a smart deal” that solidifies the company’s push to boost its direct-to-consumer channel, said Shelly Socol, co-founder of One Rockwell, a brand marketing firm specializing in e-commerce.

“They know that they haven’t been as successful with some of their internal brands. This is a way to parlay that, use their knowledge and the Kardashian name,” Socol said in an interview. “Kim’s beauty brand isn’t as big as Kylie’s was, so they’re getting it at a good time.”

Investor excitement comes as influencer culture and celebrity sway has reached a crescendo, buoyed by a boost in screentime brought on by the coronavirus pandemic. Legacy consumer companies have found that big-name collaborations, especially those that look good on Instagram, can breathe new life into struggling product lines. The Coty tie-up would further entwine the beauty company in the Kardashian web, tying the beauty company’s prospects more tightly to the family’s ability to appeal to consumers.

Deal Concern

But there’s still concern around the deal and its upside. Morningstar analyst Rebecca Scheuneman said Coty may have paid too much for KKW, which is valued at $1 billion and has no public sales data to back it up. Meanwhile, “it’s risky to build brands around celebrities” when their popularity can sporadically change, Scheuneman said. The move appears especially counterintuitive after Coty terminated celebrity fragrance brands with Lady Gaga, Celine Dion and Tim McGraw in 2018.

But still, Socol says, “it’s a price worth paying. You’re not just buying the brand; you’re buying the know-how.”

Coty expects the acquisition to be completed in the third quarter, and all the products will be sold through luxury beauty retailers as well as online, according to a statement Monday.

News of the deal comes after Seed Beauty, Kardashian West’s partner for her beauty line, won a court order temporarily blocking the reality TV star from sharing trade secrets in their agreement as she pursued the stake sale. Seed Beauty, which typically partners with celebrities to develop cosmetics and manufactures the products, said Coty would gain an “unfair competitive advantage.”

The Coty tie-up was announced just days after Kardashian West’s husband, musician and designer Kanye West, announced a partnership with Gap Inc. on a new line of apparel for men, women and kids called Yeezy Gap.

(Updates with analyst comments throughout)

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