Avon contemplating higher Coty offer

The cosmetics company needs more time to think about the latest bid.

By Kim Peterson May 14, 2012 1:23PM
Image: Money (© Corbis/Corbis)Shares of Avon (AVP) were up nearly 5% Monday after the company seemed more open to a takeover from Coty.

That doesn't mean a deal is happening anytime soon. Rather, instead of slamming the door in Coty's face, the cosmetics company now says it needs a week to think about the offer.

What changed? The money, of course. Avon rejected Coty's original offer of $23.25 a share as too stingy. But Coty upped its bid to $24.75 a share -- about $10.65 billion total -- and said it had the backing of Berkshire Hathaway (BRK.B). One source told Reuters that Berkshire could contribute $2.5 billion of the financing.

Coty gave Avon until the end of Monday to start talks, but now Avon is asking for another week. Coty hasn't responded yet.

Here are five reasons Avon is hesitant.

1. Coty's offer is still too low. "Cosmetics is a great business," one trader and Avon shareholder told Reuters. "It deserves a premium. If I were them, I would ask for $28 or more."

2. Avon has a new CEO. Sheri McCoy, a former top executive at Johnson & Johnson (JNJ), just joined April 23. McCoy undoubtedly has a plan to turn Avon around. Does the board want to give that up and hand the reins to Coty?

3. Coty wants to see the books. Coty wants to know what it's bidding on and has asked to see Avon's books and its product pipeline. Avon is understandably nervous about handing all that information over to a competitor.

4. Coty is playing hardball. The company gave Avon only a few business days to think about its latest offer. And Coty has also said its offer is subject to due diligence -- in other words, it could lower its price after looking at Avon's books. "To say yes to a price when the buyer has said it has diligence concerns is very dangerous for a company," The Wall Street Journal notes.

5. Other suitors are interested. Avon may get a bid from Richmont Holdings, a consumer brand company, Bloomberg reports. Avon would love to see itself at the center of a bidding war and may want to hold out to encourage Richmont.

In the following video, one analyst thinks Avon is worth much more than Coty's offer.




0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

115
115 rated 1
269
269 rated 2
445
445 rated 3
614
614 rated 4
684
684 rated 5
678
678 rated 6
608
608 rated 7
454
454 rated 8
310
310 rated 9
138
138 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
AAPLAPPLE Inc10
ARCPAMERICAN REALTY CAPITAL PROPERTIES Inc10
ATVIACTIVISION BLIZZARD Inc10
BIDUBAIDU Inc10
BMYBRISTOL-MYERS SQUIBB CO.10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.