* Coty offers $23.25 per share, says it can go higher
* Avon says offer undervalues company
* Avon shares up 17.8 percent at $22.80
By Phil Wahba
April 2 (Reuters) – Beauty company Coty Inc said on Monday
that it had offered to buy Avon Products Inc for $10
billion and was willing to raise the price, but the bid was
rejected by the cosmetics direct seller, which faces sliding
sales in key markets and a bribery probe.
Coty, whose products include fragrances by celebrities
including Beyonce and Lady Gaga, said it had no plans to make a
hostile bid, but had been “unsuccessful” in getting Avon to talk
about a deal.
The fast-growing privately held company majority-owned by
Joh. A Benckiser, is offering $23.25 per share, a 20 percent
premium over Avon’s Friday closing price of $19.36 on the New
York Stock Exchange.
Shares of Avon rose 17.8 percent to $22.80 in morning
trading.
In a statement on Monday, Avon rejected the offer, saying it
“substantially undervalues” the company.
But analysts said Avon’s board should not dismiss the bid
out of hand, given the company’s problems.
“It’s an opportunity that the board should seriously
consider,” said Sanford C. Bernstein & Co analyst Ali Dibadj.
Except for perhaps another direct seller, he added, there are
few potential suitors for Avon.
Coty’s bid is not “dramatically too low,” he said,
predicting Coty will come back with a higher offer.
Avon is searching for a new chief executive officer to
replace Andrea Jung, who has held that post since 1999. It has
said the new CEO will undertake a top-to-bottom review of the
struggling company, which is dealing with a probe into whether
it broke U.S. anti-bribery laws in China.
Avon, which is also cutting jobs, said that having a new CEO
will create a “greater opportunity” to increase its value beyond
what Coty is offering.
The company is facing a long decline in sales and the number
of sales representatives in the United States. During the
holiday period, sales fell in key emerging markets like Brazil
and Russia.
For Coty, buying Avon would allow it to depend less on
fragrances and perfumes and branch out more into cosmetics and
skin care products. The company praised Avon’s presence in
emerging markets, an area where it wants to grow.
Coty got 57 percent of its $4.1 billion in sales in fiscal
2011 from perfumes, and revenue is still heavily skewed toward
the United States and Europe. Overall revenue was up 17 percent
in the last fiscal year.
In recent years, Coty has done deals aimed at becoming a
more diversified beauty company. In 2010, it acquired Philosophy
Inc, a maker of personal care products, from Carlyle Group for
$1 billion and bought a majority stake in Chinese skin-care
company TJoy Holdings Ltd.
Coty also said Avon’s door-to-door direct sales model would
help its beauty brands.
It said it would call the new company “Avon-Coty.”
Coty said it originally offered Avon $22.25 per share in
early March, but failed to entice the company into talks. It
said it went public with its latest offer after sending three
letters to Jung, but failing to draw Avon into discussions.
“We do not understand how your Board’s unwillingness to
discuss our proposal can serve the best interests of Avon’s
shareholders,” Coty Chairman Bart Becht said in letter to be
delivered to Jung on Monday.
Coty said it would be willing to raise its offer if Avon can
show there is greater value in the company by opening its books.
Coty said it was confident it can line up the necessary
financing to pull off the acquisition of a company with sales
three times greater than its own.
At Friday’s close, shares of Avon were down nearly 50
percent from a year and a half ago. Before Coty made its bid
public, Avon was worth only about $8 billion, down from an
all-time peak of $21.8 billion in June 2004.
