Moody’s Investors Service has shifted its outlook upward for JAB Holding Co. SA, which holds a majority stake in Coty Inc.
Moody’s changed its outlook on JAB’s ratings to stable from negative.
“Our decision to change the outlook on JAB’s Baa1 rating to stable from negative reflects our view that there is reduced valuation risk associated with the sizeable number of M&A transactions that JAB and its investments have made over the last 12 to 24 months, especially with regards to the largely debt-funded acquisition of Keurig Green Mountain Inc.,” said Moody’s vice president, senior analyst and lead analyst for JAB, Jeanine Arnold. “This reduced valuation risk provides Moody’s with more certainty that key credit metrics will remain commensurate with our expectations for the rating level, including net market value leverage of around 15 percent.”
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The Moody’s report goes on to say that the reduced valuation risk is by the “continued robust operating and cash flow performances” of JAB’s portfolio companies, which include Coty, Keurig, Reckitt Benckiser and JDE.
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Now that Coty has closed its $11.4 billion purchase of Procter & Gamble’s specialty beauty portfolio, Moody’s considers the valuation risk to be lower. The agency said that even though Coty’s stock hasn’t fared well in the last six months (Friday it was up 0.62 percent at $19.45 in early-afternoon trading), over the medium and long term, it expects JAB’s track record in management to help boost Coty’s operating and cash flow performance.
Coty’s deal for the P&G specialty beauty portfolio added 41 brands to Coty and prompted the business to reorganize itself into three different divisions: Luxury, which contains prestige fragrance and skin care; Coty Consumer Beauty, which houses color cosmetics, retail hair coloring and styling products, plus mass-market fragrance and body care, and Coty Professional Beauty, which serves hair and nail salon owners. New brands include fragrance licenses for Hugo Boss and Gucci as well as hair care brand Wella and makeup line CoverGirl.