NEW YORK (TheStreet) -- Avon Products (AVP - Get Report) stock is up 22.64% to $5.01 in pre-market trading on Thursday after the company said Cerberus Capital Management will buy 80% of Avon North America.
The New York City-based private equity firm will buy 80.1% ownership in the beauty company's North American branch for $170 million.
The North American company will be separated from Avon Products as a privately-held company that is majority-owned and managed by Cerberus, Avon Products said in a statement on Thursday morning.
Additionally, Cerberus will make a $435 million investment in Avon Products, equal to 16.6% stake in the company, the company said. The investment will be in the form of convertible perpetual preferred stock with a conversion price of $5 per share and a dividend that accrues at a rate of 5% per year.
"We are creating a strategic partnership that will improve Avon's performance and drive shareholder value," Avon Products CEO Sheri McCoy said in a statement. "We believe this partnership and structure will also accelerate profitable growth in the remaining Avon portfolio - which represented approximately 86% of consolidated revenues for the nine months ended September 30, 2015 - as we focus resources on our top markets, the majority of which are profitable and growing."
The company also announced that six members of its board of directors were stepping down, while four executives affiliated with Cerberus will join its board. Avon Products and Cerberus will jointly look for two additional board members.
The deal is expected to close in the spring of 2016.
Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:
We rate AVON PRODUCTS as a Sell with a ratings score of D. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, weak operating cash flow, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Personal Products industry. The net income has significantly decreased by 862.6% when compared to the same quarter one year ago, falling from $91.40 million to -$697.00 million.
- Net operating cash flow has significantly decreased to $13.20 million or 90.06% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 57.59%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 852.38% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- AVON PRODUCTS has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, AVON PRODUCTS reported poor results of -$0.88 versus -$0.01 in the prior year. This year, the market expects an improvement in earnings ($0.12 versus -$0.88).
- The revenue fell significantly faster than the industry average of 13.2%. Since the same quarter one year prior, revenues fell by 22.0%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- You can view the full analysis from the report here: AVP