In the past two years Coty has snapped up smaller beauty brands such as OPI nail polish and skin care products maker Philosophy Inc. This would be the New York company's biggest deal. The acquisition also would be the largest in the U.S. so far this year, according to research firm Dealogic, and the biggest in the global retail sector since 2007.
Avon's stock rose $3.34, or more than 17 percent, to close at $22.70 on Monday. Still, the stock is down roughly 39 percent from its 52-week high of $31.60 last May and is worth less than half of its all-time high of $46.11 in 2004.
Avon's business problems and stock decline made it a tempting target, Morningstar analyst R.J. Hottovy said. Still, he thinks Coty's offer was a bit low. He values Avon's stock at about $25.
The companies' differing business models would make a combination tricky, he said."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, which said it would call the combined company Avon-Coty, expressed willingness to consider boosting the bid if Avon can show it is 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. Standard & Poor's Ratings Services placed its ratings on Avon Products Inc. on watch for possible downgrade. It said Coty will likely continue to pursue the company and Avon may take a more aggressive approach to defend itself, such as taking on more debt to buy back shares to placate shareholders.
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