Shares in L’Oréal fell 0.12 percent Tuesday to 81.56 euros on the Paris stock market following rumors that the French cosmetics giant was about to make a $44 per share bid for the $10.4 billion direct-sales beauty company Avon Products Inc., which would value the latter firm at $19 billion. Avon shares rose more than 4 percent Tuesday, to close at $34.54.
Both a L’Oréal spokeswoman and an Avon spokeswoman declined to comment on the report, originally published in the U.K.’s Daily Mail.
A number of Wall Street analysts expressed skepticism over a possible union.
“I’m unconvinced,” UBS analyst Eva Quiroga told WWD. “It would take L’Oréal too far outside its comfort zone.”
In a research note published Tuesday morning, Quiroga and her colleague William Houston stated, “We would not be surprised if L’Oréal scouted the acquisition trail, given that the group has an embarrassment of riches, with net debt estimated at zero by the end of the year and the stake in Sanofi currently worth 5 billion euros [about $7 billion at current exchange],” they said.
Such an acquisition would allow L’Oréal to increase its sales in emerging markets to 45 percent on a pro-forma basis, from 33 percent of sales last year, the analysts said, and would be a particular boost to its Latin American business. But it would also mean the company would draw 30 percent of its business from direct sales. The French firm has little experience in the direct-sales market, where competition is strong, particularly in the emerging markets L’Oréal is courting, from brands like Brazil’s Natura and Sweden’s Oriflame, particularly strong in Russia.
Stifel Nicolaus analyst Mark Astrachan said, referring to Avon and L’Oréal, “I don’t think it makes a ton of sense strategically. You’ve got two different business models.”
Jefferies & Co. analyst Douglas Lane wrote in a research note Tuesday that, at first glance, the paring may seem unlikely, but noted Avon could help L’Oréal achieve a dominant market position in emerging markets. Lane stated, “Avon has 67 percent of its sales in developing markets (i.e., the ‘new countries’) versus only 36 percent for the total cosmetics, fragrance and toiletries industry.”
Chas Manso, an analyst at Evolution Securities, said the rumor had been circulating for a couple of weeks, but he gave it little credence: “Why would they buy the whole of Avon to tap into a couple of markets?”
He said that while Avon is performing well right now, with like-for-like sales up more than its peers, L’Oréal is a company with a long-term growth strategy, looking for acquisitions that fit in with that. Avon does not enter that category, he believes.
Several analysts noted that Unilever’s recent acquisition of Alberto-Culver Co. and Procter & Gamble Co. expressing its interest in Beiersdorf have brought the M&A market, which has been largely dormant for cosmetics manufacturers during the recession, back to life.
“There has been a bit of an M&A frenzy following the buyout of Alberto-Culver, and everyone is scrambling for sources of growth,” Manso said. “M&As are back in town.”
Exclusive: @britneyspears is continuing to expand her brand. The pop icon, who appears in @kenzo ’s latest campaign, is partnering with Epic Rights to launch a line of branded merchandise. Read @hernameislex ‘s story, link in bio. #wwdnews #britneyspears
The Duchess of Cambridge channeled Princess Diana’s look upon giving birth to Prince Harry, when she and the Duke of Cambridge departed the hospital with the new baby Prince this afternoon in London. #wwdeye #princeofcambridge
The new Prince of Cambridge has arrived! The Duke and Duchess of Cambridge posed with the 8-pound newborn. She wore a look from one of her go-to designers, @jennypackham. Tap link in bio for more. #wwdeye #princeofcambridge
Jewelry label @alisonlou has made a name for itself with fine jewelry that speaks to the Millennial market. Now @twallz21 reports that the label is bringing those playful ideas to a new affordable line of lucite hoops with the launch of Loucite by Alison Lou. Here’s a look from the line modeled by @emrata. #wwdaccessories
@sarahjessicaparker and @gilt are teaming up on a bridal ready-to-wear line. Tomorrow, Parker will launch SJP by Sarah Jessica Parker Bridal — and as part of the launch, Gilt will offer 15 exclusive styles from the SJP by Sarah Jessica Parker footwear collection that were designed to complement the new line. Made out of 10 styles, the line is designed for a variety of occasions, from bridal showers to receptions. Get more details on WWD.com #wwdfashion
A grooming moment between @tanfrance and @antoni last night at the The LGBT Community Center Trailblazer Awards honoring Anna Wintour, Ricky Martin and more. See more photos at WWD.com #wwdeye (📷: @lexieblacklock)
“It was a very surreal feeling. It wasn’t like we were in the studio together coming up with it — it’s more like he discovered it and loved it. I didn’t let myself get my hopes up, but then it happened it was very exciting,” said singer-songwriter @nombe on discovering that @pharrell would be using his song, “Cant Catch Me” on his HBO documentary series “Outpost.” The German-born singer — named Noah MacBeth — talked to WWD about feminism, using art as a platform for political expression and personal style. Read more on WWD.com #wwdeye (📷: @jilliansollazzo)
This season, denim is going west – in influence. Brands like @fathersdaughterla (pictured here), @tommyhilfiger Jeans, @levis and more are opting for raw, top-stitching styles. (Styled by @thealexbadia; 📷: @ryanplett)