On April 3, Natura & Co (NATCO) announced a binding agreement to sell its Aesop brand to L’Oreal. It had indicated an intention to sell a stake last year and hired advisors, as it struggled with high leverage and difficulties turning around Avon and The Body Shop.
In our previous report, we conducted an exercise to come up with some enterprise valuations for Aesop.
The agreement with L’Oreal has an EV of USD 2.525bn, and NATCO plans to use the resources to reduce leverage and improve the financial situation of the holding company. This valuation implies a multiple of 21x, which is a little bit better than our most optimistic scenario.
At 4Q22, NATCO’s adjusted gross debt was USD 2.7bn and adjusted net debt was USD 1.5bn. Taking into account that Aesop’s net debt was close to zero, this reduces net debt to negative USD 1.1bn.
We already know the net leverage is negative. The question is what the company is going to do with the proceeds. Specifically, how much will be used to reduce debt versus investing in their businesses (the struggling ones like Avon and The Body Shop, and the non-struggling ones like Natura Cosmeticos).
NATCO is not strapped for cash in the short term, as the next significant maturity, of BRL 1.8bn (USD 366m), is only due in 2025. However, with the high basic interest rate and inflation in Brazil, and all the domestic financial instruments being indexed to the CDI and IPCA, the BRL 1.9bn (USD 391m) in debentures and BRL 519m (USD 106m) in commercial notes might be candidates for a prepayment.
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