Coty-P&G Deal A 'Homerun' If It Happens: Here's Why

Coty Inc (NYSE: COTY) shares are up nearly 20 percent on Tuesday after multiple reports it has won auctions to buy Procter & Gamble Co (NYSE: PG)'s beauty products line for $12 billion.

While neither company has commented on the rumors, a finalized deal would be one of the largest cosmetic transactions in a decade.

Stifel Comments On Story

In a new research note, Stifel analyst Mark Astrachan said such a deal would be "meaningfully accretive" for Coty shares. Of note, he holds a $28 price target on shares -- below Coty's current trading range.

"According to the article, the deal is to be structured as a Reverse Morris Trust, with P&G shareholders to own a majority of the combined business and Newco run by current Coty management," Astrachan said. "We estimate the P&G brands had F2014 sales and EBITDA of $5.6bn and $1.1bn, respectively, with a combined transaction value of 10.9x TTM EBITDA," he added.

The analyst said a Coty-P&G deal would be a "homerun" for the former, and would more than double the company's revenue and earnings footprint, while reducing costs.

There are still risks, though, he said. "[T]he assumed multiple discount to Coty and HPC peers likely reflects required reinvestment to improve recent market share underperformance for the P&G brands," Astrachan concluded.