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Coty Inc. is calling on Avon Products Inc.’s shareholders.
This story first appeared in the April 17, 2012 issue of WWD. Subscribe Today.
Coty’s chairman Bart Becht — who has failed so far to bring Avon’s board to the bargaining table for buyout talks — took his case to the direct merchant’s stockholders Monday.
Becht, on a conference call hosted by Sanford C. Bernstein & Co. analysts Ali Dibadj and Steve Powers, said he would not make a hostile bid for Avon since he needs its cooperation to understand the fallout of the bribery investigation the firm faces, the cost benefits of a merger and how much money is needed to fix its operations.
“Those are very, very large buckets, which materially impact the valuation of the company,” Becht said. “We cannot — and I’ll repeat it — we cannot put our best price forward without due diligence. It is impossible because the numbers are very, very large.”
While trying to draw shareholders into the fray with the carrot of a potentially higher bid, Becht also tried to wield the stick of a possible drop in Avon’s stock, which could come if Coty withdraws its offer.
“If there is no action, we are not going to be here forever,” said Becht, later adding, “Call the Avon board and company today and convince them to engage with us so we can determine the best price.”
Becht said investors holding more than half of Avon’s stock were on the call.
Avon brushed off repeated advances by Coty in March and publicly dismissed the suitor’s $10 billion buyout as not serious. An Avon spokeswoman reiterated on Monday that, “The board of directors was clear on April 2nd that Coty’s indication of interest at $23.25 a share is opportunistic and doesn’t reflect the fundamental value of the company, of our global beauty and direct-selling business.”
Coty firmed up its offer Monday, noting in another “Dear Andrea” letter to outgoing chief executive officer Andrea Jung that it had more than $5 billion in committed equity from BDT Capital Partners and Coty owner Joh. A. Benckiser combined. BDT is run by former Goldman Sachs banker Byron Trott, who has ties to Warren Buffett, the S.C. Johnson family and other wealthy families.
Coty has a “highly confident” letter from J.P. Morgan Securities that it could secure $9 billion in debt financing to cover the rest of the purchase price and refinance Coty and Avon’s existing debt load of $4 billion. Becht said the intent was to structure the combined company, dubbed Avon-Coty, as a private firm with an investment-grade credit rating.
Investors, who pushed shares of Avon up 17.3 percent when Coty first made its offer public, took a cautious approach Monday and the stock fell 2.1 percent, or 49 cents, to $23.03 — below Coty’s offer.
Avon last week named former Johnson & Johnson executive Sherilyn S. “Sheri” McCoy to succeed Jung as ceo, but Becht didn’t seem to think that changed the equation since Coty offers up both additional resources and expertise.
“We’re bringing Coty’s proven management to the table, we’ll pick the best [executives] of both companies,” Becht said. “More resources and a management injection are substantially better than what Avon is looking at today.”
But before Coty can make a firmer offer, Becht said it has to understand better how Avon is spending its money; for instance, how much of the firm’s selling, general and administrative expenses go toward representative incentives. Knowing that would help Coty determine the cost savings associated with a merger.
“The Avon board has a fiduciary responsibility to interact with us,” Becht said, adding Coty would need about a month of due diligence to formalize an offer.
“What we [want] to create is really an iconic company here, we’d be creating a new basically global company in the beauty industry,” he said.
That company would stay private for the first few years, he said.
If the deal doesn’t pan out, Wall Street might still be seeing more of Coty, which has had like-for-like growth of about 7 percent for the past couple of years.
“[Coty] will simply go and work its organic growth strategy,” Becht said. “It has a very clear path for growth. It knows what it wants to do. If there is no Avon deal, at some point in time there might be an IPO [initial public offering].”