Struggling Avon gets takeover offer

The cosmetics giant needs to join forces with Coty or someone else.

By Jonathan Berr Apr 2, 2012 11:36AM

Image: Lipstick (© Stockbyte/PictureQuest)Updated: 4:56 p.m. ET


Avon Products (AVP) is weakened and vulnerable -- and Coty pounced on the opportunity with an unsolicited $10 billion acquisition offer.

Avon immediately rejected the bid, but that didn't stop its shares from soaring Monday as investors sensed opportunity -- and negotiation. News of the offer pushed Avon's shares up $3.34 to $22.70. Volume topped 64 milion shares -- more than 10 times the daily average.


There are many problems with Coty's offer -- but that doesn't mean a merger of the cosmetics companies is a bad idea.


Coty, which is privately held, is much smaller than Avon, with revenue of about $5 billion -- less than half of Avon's 2011 revenue of $11.3 billion. JPMorgan (JPM) is arranging the debt financing, though questions remain about how Coty can afford such a massive acquisition.

Coty at first shopped itself to Avon as an acquisition, but Avon shot that idea down, CNBC reported. S&P had recently downgraded Avon's debt, and maybe Avon didn't think it could afford the purchase. Coty, for its part, has been on an acquisition spree, gobbling up a majority stake in Chinese skincare company TJoy Holdings in 2010, for example.


Merging the product lines of the two companies makes sense. The deal would be the biggest in the cosmetics and toiletries industry since Procter & Gamble (PG) acquired Gillette for $57.3 billion in 2005.

So what's wrong with Coty's offer? It was probably just too low. Coty's bid was a 20% premium over Friday's closing price for Avon, equaling a multiple of 1.1 times Avon's revenue last year, and 8.7 times 2011 EBITDA. That's not great, but not chopped liver either.

The chairman of Coty's board, has left open the possibility of a higher bid, though he won't go the hostile route.

It's clear that Avon shareholders would do better under Coty's management. CEO Andrea Jung has allowed Avon to flounder for years. Last year, the company stunned investors when it announced that it faced two regulatory probes for allegedly violating both Regulation FD and the Foreign Corrupt Practices Act. And let's not forget the disastrous implementation of a computer system in Brazil and the company's repeated earnings disappointments.

Avon's board has decided to replace Jung, whom CNBC's Jim Cramer called "one of the worst managers I have seen in my career," as CEO. But for reasons that mystify most, they let her remain as executive chairman for at least two years. Two former Avon CEOs denounced the board's idiotic decision.

It wouldn't be surprising to learn that Jung blocked an alliance with Coty in a last-ditch effort to hang on to power. The company is not saying if this is the case, however.

The Avon board ought to figure out how to make the deal work or find another merger partner. Shareholders might get a better deal than the one that Coty has offered once it begins to seriously review its options. Maybe Coty will raise its offer, or one will emerge from a rival such as Estee Lauder (EL), whose 2011 revenue topped $8 billion.

Jonathan Berr thinks his skin tone is "autumn." He does not own shares of the companies listed here.

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Apr 2, 2012 3:11PM
Avon is a great product, however the reps have to pay for everything!   If Avon wants more buyers a better way is to reward their reps with FREE products so that they can try them be more of assistance to the buyers.  What a scam and Avon is making it big with others doing their work for them. The person signing them up gets rewarded just for that, signing them up!  That's right folks, no free samples.  Everything is paid for, books, and bags included!   Shame, Shame.  Talk about corporate greed!
Apr 2, 2012 4:28PM
Get rid of Jung totally and Get Avon back to the basics period.  Don't make Reps pay for stupid sample things giving to customers.  If you want new customers make it worth while to the customer.  Bring back the lipstick formulas to a higher quality.  The ANEW skincare products are fantastic, keep it up. 
Remember the reason AVON started for the customers and the representatives.  Get rid of the out of country call support call lines.  When you call a customers services in the US. I want to talk to someone in the US, not INDIA.  There are too many people out of work here, the can be call centers in this country based out of peoples homes for this, ofthe reps could also do this part time.  Come on AVON think about it.

Apr 2, 2012 4:23PM
there has been a member of my family selling avon for around 75 years.  My mother has been with Avon as a rep for about 55 years and what did she get this past anniversary but an artifical flower design.  They should better reward their lifetime reps with a little more thoughtfulness.  If they took better catre of their reps and managers,  then maybe they would not be struggling so.  I love Avon products and would hate to see them merge with any other company.
Apr 2, 2012 3:31PM
Some of Avon's products are deteriorating (in my opinion), for example, their lipsticks.  They don't do what they say and they go soft after a very short time for some reason.  The makeup brushes, however, are very good and priced right!  I also had trouble with being able to acquire things they offered for sale in a timely manner.  I understand that on "hot items" the items become short and would need to be reordered for one or maybe two campaigns but beyond that time which is 30 days (as an Avon rep) it's hard to keep your customer base happy when it happens often.  Items for children were also a problem in either acquiring or even working properly.  I don't remember these kinds of problems happening so often 20 years ago.
Apr 2, 2012 2:55PM

Since the article that I am commenting on is about Avon and Coty, I don't understand why the person below me is commenting on Apple.  Stick to the subject people !


As a former Avon rep, I think it would be a good idea to merge with another cosmetics company..  I have read alot about Andrea Jung not being good for Avon, and glad to read she is being replaced.  Avon products are not made in China, maybe some, but not the make up.

Apr 2, 2012 3:53PM

Last month I threw 2 brand new AVON lipsticks away in disgust.  They were the same line and brand that I had in my bathroom, but when I received the the colors weren't even the same and they were dull and sticky.  I replaced them (cheaply) at Wal-Mart from the NYC line!  No wonder AVON is in trouble!


Apr 2, 2012 4:01PM

I am also an Avon Rep.  The best products are the Anew lines.  They still can't get the mascara right.  I sell mostly the skin care probably because that's what I really like.  It would really concern me if Avon was purchased by another company and changes were made to these products.  But, it's just business, so whatever happens, we will have to live with it.


Apr 2, 2012 6:27PM
I simply have to respond to CtryGal1's comments! I don't know who your rep from hell was, but you should not judge an entire company on your experience with one person. It is that rep's responsibility to get you a replacement or refund. Have you contacted Avon's customer service number and asked to speak to a supervisor? I find it hard to believe that Avon "ignores" you.
Apr 2, 2012 6:18PM
I am an Avon Unit Leader and I agree that the company should better reward the reps by either giving them better bonuses, free or discounted samples and business tools and making it easier to advance in title. I strongly believe that taking care of the reps would greatly improve Avon's financial picture overall. Let the profits for the reps grow from a trickle to a stream and you will produce harder working reps.
Apr 2, 2012 5:36PM

I absolutely agree about the call centers being in India.  I've been an Avon Rep for 8 years now and we USED to get Representative Care responses that actually addressed our issues.  Now we just get a canned response, most likely based on a few key words, probably from someone whose English skills are suboptimal.


I no longer purchase many samples, as they DO cost money and I wind up with too many old samples lying around.  Most of what I sell is the jewelry and some of the body care products, and there aren't samples for those anyway.

Apr 2, 2012 6:19PM
I am an Avon Unit Leader and I agree that the company should better reward the reps by either giving them better bonuses, free or discounted samples and business tools and making it easier to advance in title. I strongly believe that taking care of the reps would greatly improve Avon's financial picture overall. Let the profits for the reps grow from a trickle to a stream and you will produce harder working reps.
Apr 2, 2012 5:50PM
Someone needs to buy out and take over Avon completely.  Their satisfaction guarantee is a joke.  I've been trying to get a refund or replacement for over four months and finally filed a consumer complaint with the government as the rep said she'd bring me my refund nearly two months ago and never showed up, the district manager won't call me back, and Avon ignores me.  They got the new shoes that were too big back and kept my money.  If someone takes them over completely and I see that things have improved, I may give them another chance.  Otherwise, I'm through with Avon.
Apr 16, 2012 1:43PM
I'm selling Avon for 16 years now and the last couple years were the most terrible ones. We get charged for brochures, samples, late order fee, add on order fee, returns, previews, and taxed on the prices we win for selling a certain amount of a product. With Gas prices going up, there is not much left of your income. 
And now we are all pushed into leadership. The Customer Service is horrible for us Reps, if I send 20 items back 2 off them are missing each and every time and we get billed for those. Our orders are never complete - new items are on back order for the next 3 campaigns. There is no way that we Reps can give our Customer a great Customer service like 5 years ago. Managers don't care about our problems. It's not about the Rep anymore, it's about how much you can sell and how much Avon makes on you. They don't care if you sick or die, you will be replaced. We had a Rep that did Avon for 30 years and our manager did not even show up to her funereal. This will be my last year with Avon, I'm tired of the treatment from Avon, I'm tired of paying for things I've returned - it's not worth all the aggravation Avon is putting me through 
Apr 2, 2012 4:09PM
As long as they keep selling Moisture Therapy and DON'T change the formula I don't really care who owns Avon.  I agree about the lipsticks; even the lip glosses are cheap and the tubes aren't even full.  I can buy Revlon at Wal-Mart, pay basically the same price and get more than twice the product.

Glad to see more is being done to help the people at the China plant. How can we say it is just the way life is in China so our Apple company can just take advantage of it. Please tell me someone else does not think this is acceptable. Apple is going to raise their wages. By how much. Even if I do pay more for the product, I would be at least more comfortable knowing the workers at the Apple plant will maybe not be blown up or worked to death. Over time is ok if that is what they want, but is time and a half 2.00 an hour instead of 1.00? Or do they even make that much. We need full disclosure so when we buy their product we do not worry we are contributing to the inhumane and abusive treatment of these people who do not have any control of their lives.

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