Avon Turns Down Coty's Buyout Bid - Analyst Blog
April 03 2012 - 5:45AM
Zacks
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
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