There are big deals, and there are mega deals.

And we can safely file Coty’s $12.5 billion merger with 43 Procter & Gamble brands, including Wella, Clairol, Cover Girl and Max Factor, in the latter category. Scheduled to close in the second half of next year, the transaction doubles Coty’s slumping annual revenues to more than $10 billion, diversifies its portfolio by branching the fragrance-heavy company into retail and professional hair care, extends its global reach, enlarges its workforce by 10,000, and according to research firm Kline & Co., boosts its ranking as a worldwide leader in the beauty and personal care industry from ninth to fifth.

There is little precedent for the landmark union that will be created by a tax-free transfer mechanism called a Reverse Morris Trust. It could have ripple effects through the supply chain impacting retailers, advertising firms, distributors and consumers.

“I can’t remember a deal the scale of this. It is quite exceptional in that sense,” said Neil Saunders, Managing Director at retail consultancy Conlumino.

Stephanie Wissink, Managing Director and Senior Research Analyst at Piper Jaffrey, concurred, declaring, “This is probably one of the biggest mergers of relatively equal size that we’ve ever seen in the beauty industry.”

Early on, investors have responded tepidly to Coty’s part in the merger. The company’s share price in the days since it was announced dipped from $30.04 to close at $27.48 Friday, July 16. The financial underpinnings of the deal for Coty – savings of $550 million along with the assumption of $2.9 billion of P&G’s beauty business debt – have been greeted with skepticism. Without a bonanza of cost reductions, investors seem unsure if Bart Becht, the Chairman and interim Chief Executive officer of Coty, who is known as a cost-cutting technician, can spur the growth required to make the merger successful.

“If this were a deal where Coty said, I am going to save billions and here is how, there would be certainty in that. You can tell that story and very clearly identify the cuts,” said Neil. “No one knows what future sales are. You can say you will grow them, but what is that going to look like? That has made investors nervous. I don’t think they think it is a disaster, but they are cautious.”

The market has had a more positive impression of P&G’s decision to shift brands to Coty, a move that will net P&G a one-time gain of $5 billion to $7 billion. The company’s share price rose from $80.66 on the day the deal was revealed to $82.24 Friday, July 16. For P&G, Carrie Mellage, Vice President of Consumer Products at Kline, called Coty “a good match.” She elaborated, “It was probably a tough business to find a suitable home because it was such a large business with mature brands. There are not too many companies that could swing a deal like that. Coty is as good as anything they could have found.”

On the plus side for Coty, the P&G brands swell the company’s presence globally and in categories outside of fragrance. Based on fiscal year 2014 results, hair color constituted 43 percent and 44 percent, respectively, of total sales and EBITDA in the P&G beauty business being merged. With the merger, Kline pegs Coty as the second largest conglomerate in professional hair care and fourth largest in hair care generally.

OPI, the nail polish brand Coty acquired five years ago, introduced it to the professional salon segment, but wielding Wella and understanding the retail hair care business could prove trickier. Neil commented, “They are going to have to look at how to execute in salons. It is a much more complicated business model for them.”

Stephanie said, “I frankly don’t change my hair color like I change my nail color. Frequency, experimentation and consumption patterns around hair care are very different. There are some execution risks around the differences.”

From an international perspective, the hair care brands could be a boon to Coty. Ildiko Szalai, a Senior Beauty and Personal Care Analyst at market research specialist Euromonitor, pointed out Wella’s largest regional market is Latin America, generating 38 percent of the brand’s sales. The Middle East and Africa are responsible for 10 percent of the brand’s sales. In a blog post, Ildiko wrote, “Coty will need to invest in these regions to fully exploit the brand equity Wella holds in hair care.”

Overall, Ildiko estimated the proportion of Coty’s sales in North America and Western Europe are set to fall from 72 percent to roughly 66 percent as it brings in the P&G brands. To further push abroad, Ildiko can’t rely on hair color alone. It has to maximize the international sales of the color cosmetic brands and fragrance names it is receiving such as Hugo Boss, Dolce & Gabbana, Gucci, Lacoste, Stella McCartney and Escada.

“The geographic diversification of its iconic color cosmetics brands will have to remain a strategic priority for Coty,” she wrote. “In 2014, it purchased Chanel’s Bourjois masstige brand; the addition of Max Factor and Cover Girl to its portfolio will allow Coty to offer a range of price tiers to target new markets.” She continued, “Max Factor is the second largest colour cosmetics brand in the Middle East and Africa with a 4% value share in 2014. The addition of this brand, alongside Bourjois, Coty’s other newly integrated brand, and Rimmel, will see Coty become the second largest color cosmetics marketer in the region.”

Beyond the existing P&G brands entering Coty’s fold, Coty has asserted the new businesses will provide platforms from which to explore other acquisition opportunities. However, Stephanie counseled Coty to not concentrate on the brands it is picking up from P&G to the detriment of acquisitions of budding beauty brands.

Broadly speaking, the fundamental danger for Coty is that it won’t be able to solve the problems that plagued P&G. “They bought a business that essentially isn’t growing, and the hope is to create an economic return and, with that economic return, have a larger capital pool to invest and see some growth, but that doesn’t take away the risk that these brands have reached their peak in terms of size and next-gen consumers are looking for next-gen brands,” said Stephanie.

Neil sounded optimistic that Coty won’t be stuck forever with poor performers. He said, “There is inherent market value in them [the P&G brands], otherwise Coty wouldn’t have done the deal that it did. These brands do need some reinvigoration, and that is possible. We are not talking about dreadful brands that need to be reinvented. It will require Coty to look at each of the brands and understand what role they play in people’s lifestyles today.”

Proper management will be critical to revitalize the former P&G assets. A question mark hanging over the merger is how Coty will integrate P&G employees and assemble a strong core of upper management. Elio Leoni Sceti was due to become CEO this month, but he stepped aside as the P&G merger details were being hammered out. Bart, who stated on a conference call that he would helm the company for the foreseeable future, will oversee management of the combined company, slated to include Coty Chief Financial Officer Patrice de Talhouët, as well as additional executives from P&G and Coty. A post-merger integration team is already working to forge a joint staff.

Carrie noted Coty has adroitly absorbed brands in the recent past. She said, “With OPI and philosophy, they weren’t quick to make changes. I don’t know if they ever went through and made sweeping changes. They let the businesses be, nurtured them and grew them, and, over time, they became more incorporated in the [Coty] business.”

Neil said stepping up authority could be necessary for Coty. “They can’t leave it as a standalone business because they need to exert central control to put it on the right strategic direction while at the same time retaining talent,” he contended.

As the complexity at Coty increases, P&G is getting simpler. Simplicity could be a winning strategy for the CPG giant. Carrie said, “I see them focusing more narrowly on the mass sector than they once were. They are returning to that as a channel strategy and not diversifying as they once were. I see them remaining with the leading mass brands in many categories. They have Crest, Olay and Pantene. I see them focusing on these brands and giving them the attention they need to sustain leadership.” P&G also retained luxury skin care brand SK-II.

P&G certainly believes it has gotten better by getting smaller. “What we lose in the [divestiture] process are 60 percent of our brands and all the complexity they create while retaining 85 percent of sales and 95 percent of the before tax profit, a very good trade in our view,” said Jon Moeller, Chief Financial Officer of P&G, in a conference call following the merger announcement. “The reshaped company will operate with a very focused portfolio where just seven categories represent 85 percent of sales and profit. As we are able to focus all of our energy on these leading businesses which benefit from our core strengths, we expect to further improve top and bottom line performance.”