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.”
@kith is moving into children’s. The men’s and women’s streetwear brand has launched Kidset, a Kith kids line located in New York at 64 Bleecker Street. The line includes mini versions of staple Kith pieces like the Astor bomber jacket and the Kith box logo sweatshirts, along with a wall that can display up to 120 pairs of shoes from @adidas, @newbalance, @timberland and more. #wwdfashion
“I just wanted to create this fully rounded character, but I do think what excited me most was just the opportunity to give a group of people representation that I feel needs it. I like to do characters in projects that stand for something and Karolina definitely does, so that was really exciting to me,” @ginnygardner says of her new role in @hulu’s “The Runaways.” Gardner plays Karolina Dean, a queer superhero, which is a rarity for @marvel. Read more about Gardner’s character on WWD.com #wwdeye (📷: @dandoperalski)
@heriethpaul and @gracebol have a moment on the @victoriassecret fashion show 2017. See every look from the runway on WWD.com. Link in bio. (📷: @giovanni_giannoni_photo) #wwdfashion #victoriassecret #VSFashionShow
“Azzedine has been one of the biggest influences in my life. He has always been such a strong, loving, fatherly figure to me. I call him Papa. His designs are indescribably unique, they are pieces of art. He knew how to make the female form look its loveliest. I have so many memories of him; my favorite might be during my first show with him in Paris. He liked me and he wanted to help me get more work. He called all his friends at Kenzo and Comme des Garcons, and asked them to book me. They said, ‘But she can’t walk!’ And he said, ‘but she has such a great ass!' His friendship and support has been the great privilege of my career. I can't imagine life without him. Repose en paix mon Papa.” - @stephanieseymour tells @wwd. #wwdfashion (📷: @steveeichner) #alaia #azzedinealaia
Azzedine Alaïa, flanked by two of his closest friends, models Stephanie Seymour and Naomi Campbell.
He designed Seymour’s dress for her 1995 wedding to Peter Brant, and treated Campbell (who famously called him Papa), like a daughter. For more on the legendary designer, tap the link in bio. #wwdfashion #alaia #azzedinealaia