In a move to narrow its focus and increase profitability, Avon Products Inc. cut a deal to sell its Silpada Designs jewelry business to Rhinestone Holdings. The sale, which is expected to close today, includes an $85 million all-cash transaction, plus an earn-out of up to $15 million if Silpada achieves earnings targets over two years.
“Stabilizing Avon’s U.S. business is a top priority in our turnaround efforts,” said Avon chief executive officer Sheri McCoy, who took the helm in April 2012. “Divesting Silpada is an important step in our plan and will enable us to focus our resources on the core Avon business.”
Avon said in February that it was reviewing the Silpada business and it subsequently decided to divest due to the amount of time it would take return the business to “historical levels of profitability.”
The company expects to incur a posttax noncash charge of approximately $50 million, “reflecting the estimated loss on sale in the second quarter of 2013.” Avon said it expects the proceeds from the sale will be used for general purposes, namely the “repayment of outstanding debt, further strengthening Avon’s balance sheet.”
The divestiture process involved an auction in which Rhinestone, a business formed by Silpada’s founders, offered the highest bid.
A Standard & Poor’s analysis Tuesday made clear the work Avon has ahead of it.
“Though the company’s new management team appears to be gaining some traction in stemming declining sales and margins, performance in some of the company’s key markets remains fragile,” said S&P. “The Brazilian market, for example, is highly competitive and improvement remains tenuous, in our view. The U.S. market continues to be soft and unprofitable.”