Procter & Gamble is selling its beauty business to Coty for approximately $12.5 billion, the companies said on Thursday.
Among the 43 beauty brands included in the transaction are fragrances Dolce & Gabbana and Gucci, cosmetics brand CoverGirl and hair coloring brand Clairol.
Once completed, P&G shareholders will own 52% of the combined company while Coty's existing shareholders will own the remaining 48%.
The combined company will have more than $10 billion in pro forma revenues, effectively doubling the size of Coty and creating one of the world's largest beauty companies.
New York-based Coty already owns major brands ranging from nail polish maker OPI, cosmetics company Rimmel and Calvin Klein fragrances.
“The merger with Coty, a strategic acquirer, will provide an excellent new home for these businesses and brands," said P&G CEO AG Lafley in a statement. The consumer products company has been working to slim down and focus on a portfolio of just 65 brands it believes will drive growth. In last year alone it sold pet food brand Iams, Duracell batteries and its soap brands.
The deal will be structured as a "Reverse Morris Trust," a maneuver that combines a spin-off followed by a merger meant to minimize taxes. It is expected to close in the second half of 2016.
"The transaction is a serious home run for P&G: it allows the company to 'productively' dispose of a highly appreciated asset without ever paying tax on the gain associated with the asset," says tax expert Robert Willens.
Shares of P&G rose 1% in pre-market trading while shares of Coty rose more than 3%.
