Avon’s stock soars after Cerberus buys 80% stake

23 Dec 2015 | Author: | No comments yet »

Ailing Avon sells majority stake in North American business.

Avon, the nearly 130-year-old cosmetics company that got its start peddling perfumes door-to-door, is selling the majority of its North American business.

The private equity firm Cerberus Capital Management has agreed to acquire an 80 percent stake in Avon North America, separating it from its parent company, in an effort to turn around the struggling unit out of the public eye. Cerberus has also agreed to take a 16.6 percent stake, or about $435 million, in the parent company, Avon Products, according to a statement released Thursday. The company had a chance to sell itself three years ago but fragrance maker Coty withdrew its $10.7 billion offer after Avon blew a deadline to discuss a deal. Once a hallmark in suburban homes, with Avon ladies going door to door to sell beauty products, the North American unit has struggled to keep up with consumers’ shift toward e-commerce. As part of the deal, Cerberus will designate a new chairman and also take three seats on Avon’s board along with naming two new independent directors, the Journal said.

Long the subject of buyout rumors, the company was also the victim of a hoax, when a phony firm, called PTG Capital, claimed to have made a takeover offer. Cerberus is known for investments in troubled companies, but its best-known portfolio company may be Remington Outdoor, which made the weapons used in the Sandy Hook and the San Bernardino, Calif., shootings. Earlier this month, the Barington-led group, which collectively owns more than 3 percent of the company, laid out its plans in an open letter sent to Avon Chairman Douglas Conant. The faded American icon, founded by traveling book salesman David McConnell in 1886, still relies on a network of sales reps to hawk its beauty products and has been slow to adapt to the Internet and other changing shopping habits. Barington reiterated those concerns on Thursday, though investors generally seemed satisfied with the deal, sending the shares up as much as 17 percent.

Avon, which was valued at nearly $1.8 billion as of Wednesday’s close, has been struggling to reverse a decline in sales for nearly four years, as it loses representatives—the so-called “Avon Ladies”—in the United States and grapples with weak demand in Brazil. The private-equity firm will also make a $435 million investment for a minority stake in parent Avon Products, in the form of convertible preferred shares with a conversion price of $5 a piece. In selling the North America business, Avon said it would incur a loss of $325 million to $425 million from pension and post-retirement benefit plans. The firm, incorporated in a remote archipelago in the Indian Ocean, offered on May 14 to buy Avon for $18.75 per share, nearly three times the company’s value at that time.

Avon’s remaining portfolio represented about 86 percent of revenue during the nine months through September, Sheri McCoy, the chief executive of Avon Products, said in the statement. “The capital infusion from Cerberus, alongside the suspension of the dividend and additional operating efficiencies provide us the needed financial flexibility to implement operational and capital plans that fully support the international business,” Ms.

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