By  on January 30, 2018

Activist investors want Avon Products Inc. to sell itself — but the pool of potential buyers may be limited.On Monday, activist investors Shah Capital, Barington Capital Group LP and NuOrion Partners, which own about 3.5 percent of Avon collectively, pressed the business to explore strategic alternatives, including a sale of all or parts of the company. Avon's stock price closed down slightly, at $2.41.Financial analysts and sources said there is no obvious buyer for Avon, as a whole or in pieces, and that it's more likely the business will turn its focus to hiring a new chief executive officer to focus on its turnaround."These activists have a short memory," said one financial source, noting that Avon had previously tapped Goldman Sachs and Centerview to consider options. "Avon ran a process to sell themselves, like, two years ago and no one showed up."One name thrown out as a potential buyer was Coty Inc., which submitted a more than $10 billion offer to take over Avon in 2012.In an interview, DA Davidson analyst Linda Bolton Weiser said there was "only one strategic" — Coty — that would make sense as a buyer, but said there was a "less than 50 percent chance Coty would make a move at this point." In a note, she said Coty management indicated the Avon "ship has sailed."Sources close to Coty indicated it's not likely the business would bid again, despite its recent investment in social-selling company Younique. A Coty spokeswoman said the company does not comment on rumors.Citi analyst Wendy Nicholson suggested Coty could be a potential buyer, as well as companies seeking exposure to emerging markets, like O Boticario. Another source suggested Natura or Oriflame as potential interested parties.Another possibility is that a consortium of buyers could come together to break up the company by geography, said Jefferies analyst Steph Wissink, or that Cerberus, which took over the North America business in 2016, could be involved in a potential future deal. Asked to think about the list of obvious buyers, Wissink said "there's not even a list of one, two or three that comes up."Wissink also noted that while Avon is struggling, not all multilevel marketing businesses are faring similarly, citing Younique as an example of a modern-day social-selling business. "There is value in these social-selling models, but Avon is sitting in the lower left quadrant," Wissink said. "They're catalogue, print, face-to-face selling," she added, noting the adoption of mobile phones in emerging markets is also eroding Avon's position. "The geographic barriers are starting to break down and brand credibility around the world is happening — and mobile is the link. For the Avon seller, that mobile phone just becomes a competitor," Wissink said.What Avon really needs to do is hire someone with the right experience as ceo, analysts suggested."If they are successful in bringing in a truly experienced turnaround ceo, I think the conversation at least starts to change," Wissink said. "They have to make really hard decisions. It's a substantial amount of restructuring.""They need to get new management, and that's what's going to happen," Weiser said. "It's hard to find somebody…somebody with some direct selling experience would be a better idea…somebody clearly, with international experience."In the activists' letter, the shareholders requested Avon hire a financial adviser to explore strategic alternatives, saying they were "extremely disappointed" in Avon's stock price — which has declined more than 58 percent in the past year — and that the board has been slow to hire a new ceo. Current ceo Sheri McCoy plans to step down at the end of March.The group also said shareholders shouldn't have to keep waiting for a turnaround "from a board that has overseen such tremendous destruction of shareholder value." The group also called out Avon’s deteriorating financial performance, said the management team is overpaid and that the company’s capital structure is inefficient.“Avon’s board of directors and management team are committed to delivering value for all shareholders, and will continue to take actions to improve performance,” an Avon spokesperson said. “The board values the input of all shareholders and is executing against its roadmap to deliver profitable growth. The company is in the midst of a ceo transition which is on track to be completed on schedule as previously announced. We are confident that the changes we are undertaking will strengthen and grow the business.”

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