Avon Turns Down Coty's Buyout Bid - Analyst Blog

By Zacks Equity Research,

Shutterstock photo

Avon Products Inc. ( AVP ), the world's largest direct seller of beauty and related products, rejected privately held beauty company Coty Inc's public bid to buy Avon for about $10 billion. Avon's board refused Coty's offer citing that the bid price of $23.25 per share undervalues the company.

Avon's rejection on the takeover bid came after Coty went public in order to indulge Avon in a discussion regarding the buyout. Previously, Coty's three proposals to Avon's CEO failed to bring Avon to a discussion or to arouse any interest in the buyout deal.

The $23.25 per share bid represents a 27% premium from the three month volume-weighted average price for Avon shares as well as a 20% premium over the company's closing share price on March 30, 2012.

However, Avon believes Coty's proposal is opportunistic and aims to take advantage of Avon's business woes, such as the bribery probe, declining sales and the absence of a CEO. Further, the company believes the deal is not in the best interest of the shareholders as it remains confident of executing well on its strong long-term goals.

Further, Coty's proposal indicates readiness to raise the bid if Avon is able to determine its worth higher than what is calculated from the publicly available information. On account of this, Avon does not see Coty's proposal as a real offer. It believes Coty is venturing to take a "free look" at Avon, who is not committing to close the transaction at any definite price.

According to Coty, the combination would create an iconic beauty company while providing new growth opportunities for both companies. Through the deal, the company expects consumers to reap benefits of superior access to innovative, quality and branded beauty products across multiple distribution channels.

Additionally, the combination will benefit the product categories as each company's forte in product offerings will complement the other. Coty is a leader in Fragrances and Nail Products, while Avon core strength lies in Color and Skin, and Body products. The offer proposed to call the new company Avon-Coty.

Founded in 1904 by a perfume maker, Coty is a leader in global beauty with annual net sales of $4.5 billion. The company has grown into a supplier of fragrances and nail polishes, having a portfolio of notable brands. The company sells its products to consumers in about 135 markets worldwide.

Avon Products is a leading global beauty company targeting women consumers in over 100 countries through 6.5 million independent sales representatives. The company faces stiff competition from other direct-selling companies as well as companies selling through prestige retail channels. One of the prime competitors of Avon is Revlon Inc. ( REV ).

Avon currently retains a Zacks #3 Rank, which translates into a short-term 'Hold rating. Our long-term recommendation on the stock is 'Neutral.

AVON PRODS INC ( AVP ): Free Stock Analysis Report
REVLON INC-A ( REV ): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: AVP , REV

More from Zacks.com




Follow on:

Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by BankRate.com