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Procter and Gamble has agreed to hand control of 43 hair and beauty brands to beauty giant Coty for $12.5bn (£8.13bn).

Coty’s existing portfolio of mainstream brands includes Calvin Klein, Balenciaga and Davidoff fragrances, as well as cosmetics like Rimmel London and Astor.

With the P&G deal, Coty will now gain control over Wella, Clairol and Max Factor as well as Hugo Boss and Dolce & Gabbana fragrances, among others.

The deal will likely place Coty among the top beauty players globally, with the firm winning the P&G bid against Henkel and Revlon.  

P&G will merge the 43 brands into Coty through a complex deal referred to as a 'Reverse Morris Trust' structure, in which the FMCG firm will spin off the operations into a new entity. P&G’s shareholders will own a majority stake in the new organisation.

The new firm is expected to make around  $10bn in revenue, and will be led by Coty CEO Bart Becht.

Depending on the eventual value of the transaction, P&G estimates a one-off gain of $5bn to $7bn from the deal.

The deal could  mark the end of P&G's brand cull, after the firm.

More marketing spend on big brands

The deal is not expected to close until the end of next year, meaning neither firm is likely to reveal strategic plans for the new entity.

There are, however, clues in Coty’s most recent financial report for fiscal Q3 2015.  

Speaking to analysts in May, Becht and Coty’s legal chief, Jules Kaufman, said the firm would cut spend on underperforming brands, and divert that money to  "power brands".

Kaufman particularly identified celebrity fragrances as a "phenomenon which is dying out", while Coty's power brands comprise the Sally Hansen nail polish brand, Rimmel, Chloe and Marc Jacobs. Coty has said it spend $1.1bn on ads and $1.5bn on marketing globally in 2014.

Kaufman said: "We need to increasingly focus [on] reinvesting some of the monies that we're saving into the business, and in particular, in the power brands.

"The drag will continue on the bottom end of the portfolio, but we need to accelerate the growth at the top end."

CEO Becht particularly identified advertising an area of cost savings from lesser brands.

He said: "If you look at what has happened on a year-to-date basis to our advertising and promotional budget, you will see that in terms of absolute spend, there is not a lot changed.

"However, in terms of allocation, it substantially changed. So, we have substantially increased already the working media budget on our power brands."

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