Avon slams door on USD10bn Coty offer

Avon brand ambassador, Reese Witherspoon.

Avon Products, which has 6.4 million independent representatives in over 100 countries and a solid presence in emerging markets, said the Coty bid was "significantly below" Avon's value and "opportunistic".

Coty earlier Monday, 2 April 2012, launched a cash offer of $23.25 per share for the struggling Avon, noting negotiations on a merger had failed and it was putting the matter to shareholders.

Bart Becht, chairman of Coty, a private beauty firm founded in 1904 by Frenchman Francois Coty, stressed that his company wanted to hold talks with Avon to "determine if there is a basis for a transaction."

"We believe Avon's shareholders would want their Board to explore with us the benefits to shareholders of a transaction," Becht said. Coty has some $4.5 billion in annual revenues and includes brands Calvin Klein, Chloe, Marc Jacobs, Davidoff, Philosophy, OPI, Playboy, Sally Hansen, Adidas and Rimmel.

Coty's fragrance portfolio ranges from Casmir perfume for Swiss luxury jewellery and watchmaker Chopard to hip-hop perfumes Baby Phat and Phat Farm. Its proposal is for a merged firm to be called "Avon Coty."

Avon has over $11 billion in annual revenue.

Coty pointed to Avon's strong presence in emerging markets, where it generates over 68% of its revenues mainly in door-to-door distribution. "While many of Coty's brands already have good levels of awareness in many of these markets, they are not widely available for sale at this point in time due to lack of Coty infrastructure," Coty said.

Coty privately approached Avon for the first time on 7 March, then on 19 March, with takeover offers. The New York-based Coty said it had decided to make its proposal public in order to inform Avon's shareholders of the significant value in a transaction but added that "it has no intention of pursuing an acquisition on a hostile basis."

Coty said its offer "represents a very substantial premium of 27% over the three-month volume-weighted average price for Avon shares," and came after "extensive but unsuccessful attempts to engage Avon in discussions."

Avon, a New York-based pioneer of direct selling founded in 1886, called Coty's offer "opportunistic and not in the best interest of Avon's shareholders." Avon noted that Coty's offer was subject to numerous conditions.

"In the final analysis, Coty is attempting to obtain a 'free look' at Avon in the absence of any commitment whatsoever to close a transaction at any price," it said.

Avon, which claims to be the world's biggest direct seller, reaffirmed its commitment to finding a new chief executive and pursuing a strategy that develops its "strong long-term prospects." Under pressure from shareholders, Avon is recruiting a new CEO to replace its longstanding chief Andrea Jung. The company's share price has tumbled 36% in a year and a half and its sales have steadily declined.

Shares in Avon jumped 17.3% on Monday, closing at $22.70. Coty said it would consider raising the price of its proposal if Avon "can demonstrate that there is greater value than is apparent from publicly available information."

"Based on the rhetoric in the offer letter, as well as Avon's rejection, there appears to be room for the bid to move higher from the current $10 billion valuation," Barclays analysts said in a research note.

Source: AFP