This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Coty Tries To Kiss and Makeup With $10.7B Avon Bid (Update 1)

In its offer, Coty said that it would raise substantial equity and debt to finance the purchase, which would be the largest U.S. deal of 2012 if completed. On Thursday, Avon Products shares surged when the parent company of Coty said it would sell $2 billion of Reckitt Benckiser shares to help fund the deal. On Thursday, Coty said that its equity financing for the deal will come from BOT Capital Partners and Berkshire Hathaway (BRK.A - Get Report), while debt financing will come from JPMorgan (JPM ).

In reaction to Coty's initial unsolicited offer, Avon Products, the world's largest door-to-door cosmetics merchant, rejected the offer saying that it "substantially undervalues" the company, which is struggling amid management change, slowing profits and an internal bribery probe. The New York-based company also noted that Coty's highly conditional offer gave it little reason to enter formal takeover discussions or open its finances for a bid.

In Coty's initial offer, the maker of perfumes branded by Heidi Klum and Beyonce Knowles raised the possibility of a price increase if Avon were to enter friendly negotiations and its finances show a greater fundamental value of the company.

"On its face, Coty seems to have limited ability to materially increase its offer price but given a rumored IPO and equity and debt financing arranged through credible institutions, per the offer letter, we believe the likelihood of a deal at a higher price increases," noted Stifel Nicolaus analyst Mark Astrachan in reaction to the April 2 offer. Astrachan rated Avon Products shares a "hold" and expected that it would eventually friendlier negotiations because of its internal struggles and the absence of a competing offer from a strategic acquirer.

Bloomberg calculates a takeover of Avon Products is the largest player in the cosmetics space since a $57.3 billion by Procter & Gamble (PG) for Gillette in 2005.

"Coty noted the opportunity of distributing Coty's brands via Avon's distribution channel and that a material part of cost synergies would be reinvested into the combined business if the deal were to go through," wrote Bank of America Merrill Lynch analyst Christopher Ferrara in April. Ferrara suspended his rating on Avon Products in light of Coty's bid.

New York- based Avon Products shares fell amid an internal bribery probe stemming from its business in China and management change. In March, the company fired of its China-based executives, according to a regulatory filing.

In May, Fitch Ratings and Standard & Poors downgraded Avon Product's credit rating into near junk status citing weaker than expected earnings and questions on how quickly a turnaround can be executed.

Still, after Coty's bid was disclosed, some analysts said that with new management, Avon Products could recover from its waning sales and cash flow, in addition to management change and lingering corruption investigations. "While Avon clearly has [long-term] trouble spots like the U.S., we believe evidence suggests that its most critical issues are within its control and therefore likely could be corrected," noted Ferrara of Bank of America in an April 5 note detailing a contrarian argument to Coty's bid. Shortly thereafter, Avon hired McCoy of Johnson & Johnson as its new CEO.

For more on Coty's bid for Avon Products, see 5 ways to play Avon Products options.

-- Written by Antoine Gara in New York
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AVP $4.32 -8.67%
BRK.A $217,354.00 -1.32%
JPM $62.56 -1.93%
AAPL $95.18 1.64%
FB $117.43 -0.96%


Chart of I:DJI
DOW 17,750.91 -140.25 -0.78%
S&P 500 2,063.37 -18.06 -0.87%
NASDAQ 4,763.2240 -54.37 -1.13%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs