Coty Inc. is giving Avon Products Inc. one last chance to consider its takeover proposal — and it’s lined up none other than Warren Buffett to help it out.
After spending the last month working to win over Avon shareholders, Coty is once again lobbying Avon’s board. This time around, Coty has sweetened the offer with a higher bid of $24.75 a share, or $10.65 billion — and a new investor, Buffett’s Berkshire Hathaway Inc. Buffett’s company also has an investment in Johnson & Johnson, ironically the former employer of Avon’s new chief executive officer, Sheri McCoy.
Avon made Coty’s letter, which was dated May 9, public on Thursday, and did not immediately reject the offer, as it did on April 2 following Coty’s initial bid of $23.25 a share, or $10 billion. Instead, Avon said its board “will consider the letter in due course.”
Despite Coty’s lingering interest, Avon’s shares closed down 3.3 percent Thursday at $20.89 on the New York Stock Exchange.
Bart Becht, chairman of Coty Inc., made clear that his company’s offer has an expiration date. Avon has until Monday to respond, or Coty will withdraw the new offer, which is subject to an expedited due diligence process of several weeks.
Becht wrote, “When we contacted you again last week, you advised us that Avon’s board of directors was not prepared to engage in any discussions regarding any revised proposal until Avon had completed a strategic and operational internal review with its new ceo.
While we understand Avon’s interest in conducting such a review given the significant challenges and uncertainties described in your recent analyst call, this review can and should be done in parallel with exploring the strategic alternative of selling the company....We will not keep our proposal open for the several months that you say you need to conduct your internal review.”
Coty stated its equity sources are prepared to work until May 31 to find a mutually agreeable basis for a transaction. The company reiterated that its equity financing sources would include its principal shareholders Joh. A. Benckiser, BDT Capital Partners and certain of its limited partners, as well as the addition of Berkshire Hathaway. Berkshire Hathaway did not return calls requesting comment.
“We believe the revised offer is a fair starting point to negotiations and increases the likelihood Avon is acquired,” Stifel Nicolaus analyst Mark Astrachan wrote in a research note on Thursday. “Absent an agreement, Avon’s board must present a compelling argument to shareholders why the company should remain independent, particularly given numerous fundamental and operational problems and highlighted by disappointing first-quarter results.” Should Coty walk, Astrachan said shares will likely return to high-teen levels.
Coty may not be Avon’s only suitor. The Dallas-based private equity firm Richmont Holdings is reportedly putting together an offer as well. The family-run fund is lead by John Rochon, a former chairman and ceo of Mary Kay Inc. But a number of financial observers questioned Richmont’s ability to gather the funds needed to outdo Coty’s initial $10 billion bid. A spokesman for Richmont stated, “I can’t confirm or deny the reports that have surfaced regarding Richmont and Avon.”