Brazil's Natura to boost revenues by investing in Avon brand - CEO

Credit: REUTERS/Paulo Whitaker

By Gabriela Mello

SAO PAULO, May 23 (Reuters) - Brazilian cosmetics firm Natura NATU3.SA expects to boost revenue by investing in brand and digital capabilities after sealing a deal to merge with Avon Products AVP.N and control 76% of the new company, executives said on Thursday.

"As it comes to digital transformation, our approach is similar to the one Avon has been following, and we also share the same optimism about the brand," Natura Chief Executive João Paulo Ferreira, said in a call with analysts.

Chairman Roberto Marques said it will be necessary to spend around $125 million over the next 36 months to capture cost savings of $150-250 million per year, mainly in Brazil and the rest of Latin America.

"For now the synergies we anticipate are mostly operational, in the supply chain, but we also see opportunities for revenue synergies, although it is too early to provide such guidance," Marques said in a later call with journalists.

Ferreira noted that almost 500,000 consultants already sell both Natura and Avon brands and this is expected to rise after the merger. "But our idea is to keep separate commercial structures for Avon and Natura, so no major impact is expected in terms of jobs," he said.

Chief Financial Officer José Filippo said Natura expects Avon bondholders to agree to the merger, but has already secured credit to pay them back in case they ask for early repayment.

Bond clauses allow bondholders to be repaid early if Avon's controlling shareholder changes. Filippo declined to give guidance on the combined company's financial leverage.

Avon shares AVP.N were 6% up at their highest level in two years. Natura stocks NATU3.SA were 8% lower, after reaching all-time highs on Wednesday.

Natura has risen 37% since March, when it first confirmed deal talks with Avon.

"The market has already priced in much of the guidance for synergies, though we understand that further relevant sources of gains might continue to positively affect its share price," Itaú BBA analysts wrote in a note on Thursday.

BTG Pactual analysts said the deal should add complexity to Natura's business model, as the company deals with The Body Shop turnaround and softer trends in its local market. But they added similarities with Avon's business, which also has high direct sales, should ease integration.

(Reporting by Gabriela Mello Editing by Chizu Nomiyama and Susan Thomas)

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

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