Beauty company Coty has signed a binding letter of intent (LOI) to sell part of its stake in cosmetics company Wella for $150m.

Under the terms of the agreement, Coty will sell a 3.6% stake in Wella to investment firm IGF Wealth Management.

The company will leverage proceeds from the transaction to pay down its debt.

The move advances Coty’s objectives to actively deleverage as it exits calendar year 2023 (CY23).

The company will retain a 22.3% stake in Wella but is committed to sell it by CY25. It values the remaining stake at approximately $900m.

The deal is subject to certain closing conditions and is expected to close in the next two months.

Coty chief financial officer Laurent Mercier said: "Today’s announcement is a milestone for Coty, as the partial monetisation of our Wella stake reinforces the strength of our balance sheet, with no debt maturities in the next two years and our remaining Wella stake carrying an implied valuation of approximately $900m.

“The expected transaction is a concrete step in our commitment to both fully divest our retained Wella stake and reach leverage of approximately two times by end of CY25.

“Coupling this deleveraging with a best-in-class medium-term growth algorithm, an active capital return programme, including $400m in targeted future share buybacks, and the continued momentum in our business, it is clear that we are reinforcing Coty’s position as a beauty powerhouse.”

In 2021, the retailer said it would divest around a 9% stake in Wella to its majority owner KKR.