Avon Products rejects Coty's $10 billion offer
NEW YORK (AP) -- Coty came calling, but Avon slammed the door.
Struggling direct cosmetics seller Avon Products Inc. on Monday rejected a $10 billion buyout offer from Coty Inc., a smaller beauty products maker looking to capitalize on Avon's business woes.
It is the largest takeover offer by far from New York-based Coty Inc., which snapped up smaller beauty brands like OPI nail polish and Philosophy Inc. skin care, in the past two years. The $23.25-per-share bid also underscores the weakness at Avon, which has been beset by a foreign bribery investigation, weakening sales and a leadership vacuum.
Coty is controlled by German holding company Joh. A. Benckiser GmbH, which also operates consumer products company Reckitt Benckiser Group plc. Coty has about $4 billion in annual revenue. It has said it wants in increase that to $7 billion by 2015.
Adding Avon's $11 billion a year in revenue would far surpass that goal. The deal also would strengthen Coty's hand in emerging markets.
Coty is mainly known in the U.S. for its fragrances by celebrities like Beyonce, Celine Dion and Lady Gaga. It also makes Calvin Klein brand fragrances.
Coty has kept a tight lid on the values of previous acquisitions. But it went public with the Avon bid Monday to put pressure on Avon to negotiate. The offer, which isn't binding, is a 20 percent premium to Avon's Friday closing price of $19.36. Coty also said it won't pursue a hostile takeover.
Avon's stock rose $2.90, or 15 percent, to $22.26 during morning trading. Still, the stock is down 39 percent from its high of $31.60 in May 2011.
Avon said the bid undervalues the company and quickly rejected it.
Avon was founded in 1886 and became a fixture in American culture for its "Avon ladies" selling products door to door and to friends and family. But North American sales have been in a long decline. Now, about 80 percent of its revenue comes from overseas.
Avon's profit has shrunk over the past three years. It has frequently missed analysts' earnings expectations and posted disappointing sales in some of its largest markets, including Brazil and Russia.
The company also is facing a bribery probe that started in China and widened to other countries. The Securities and Exchange Commission is investigating its contact with financial analysts in 2010 and 2011 related to the investigation.
Investors and analysts have blamed CEO Andrea Jung for the problems. In December, Avon began seeking a replacement for Jung, who plans to remain chairman.
Avon's business problems and stock decline made it a tempting target, said Morningstar analyst R.J. Hottovy said. Still, he thinks the offer was a bit low. He values Avon's stock at about $25.
He said a deal looks unlikely.
"It would be very difficult for a direct-sales model to be integrated into a traditional consumer product company," he said.
Coty said in a letter to Avon that its proposal would not interfere with Avon's CEO search. Coty also said it is willing to consider boosting the bid more if Avon can show that its worth more.
But Avon said that Coty's non-binding bid is not a real offer.
"Coty is attempting to obtain a `free look' at Avon on the absence of any commitment whatsoever to close a transaction at any price," Avon said.
Coty said that if a deal were to occur, the combined company would be called Avon-Coty.
Coty was founded in Paris in 1904 by Francois Coty, who is considered a pioneer in the fragrance industry. The New York company, whose products are sold in 135 markets globally, says on its website that it had revenue of almost $4.1 billion for the year ended June 30, 2011, more than half coming from perfume.
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