Avon Products Inc.
) seem to be in a state of dilemma after Coty Inc. inflated its
takeover bid to roughly $10.7 billion for the world's largest
direct seller of beauty and related products. Coty, this time, has
also set a deadline of May 14, 2012, for Avon to engage into talks
regarding the takeover. If Avon fails to stick to the deadline,
Coty plans to withdraw its proposal.
Avon on May 13
informed Coty that the Board will consider the new bid and respond
within a week. However, the market continued to react negatively
due to Avon's stance so far on Coty's proposal. As a result, Avon's
share price has dipped nearly 6.5% following Coty's revised
Last week, privately-held beauty company Coty approached
cosmetics maker Avon, with a revised buyout bid offering to pay
$24.75 per share, an increase of $1.50 a share from $23.25 per
share proposed earlier last month. The new bid represents a 36%
premium on Avon's closing price on March 6, 2012 and an 18.5%
premium on Avon's closing price on May 10, 2012. The new bid is
subject to due diligence and other conditions.
Earlier, Avon had turned down Coty's $10 billion public bid to
buy Avon, citing that the bid price of $23.25 per share undervalued
the company. Avon's rejection had come 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
Coty's equity financing sources for the transaction include
Coty's main shareholder, Joh. A. Benckiser, BDT Capital Partners
and some of its limited partners, and Berkshire Hathaway Inc. The
company has tied up with J.P. Morgan Securities for debt financing.
Sources indicated that about $2.5 billion of the financing will
come from Berkshire Hathaway.
According to Coty, the combination would create an iconic beauty
company that would further provide new growth opportunities for
both the 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's core strength lies in Color and Skin, and
Body products. The offer proposed to name the new company as
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
Avon currently retains a Zacks #5 Rank, which translates into a
short-term 'Strong Sell' rating. Our long-term recommendation on
the stock is 'Neutral'.
AVON PRODS INC (AVP): Free Stock Analysis
REVLON INC-A (REV): Free Stock Analysis Report
To read this article on Zacks.com click here.