Avon Products Inc.’s stock price soared Tuesday after reports indicated the company has entertained sale talks.
At market close, Avon’s stock was up about 10 percent, to $2.29.
Brazilian direct seller Natura is said to have approached the business about a deal, according to a report by The Wall Street Journal. A spokesman for Avon said that the company does not comment on rumor and speculation. A Natura spokesman said, “there are no negotiations in progress concerning a possible acquisition of Avon, as we’ve informed the market and regulatory agencies.”
The speculation comes shortly before Avon’s investor day on Friday, when chief executive officer Jan Zijderveld is expected to unveil his turnaround plans for the business.
Zijderveld, a Unilever veteran, was appointed to the ceo post back in February. Since he took the helm, he’s focused largely on Avon’s digital initiatives, hiring key executives, and on the company’s experience for its sales representatives. One of Avon’s new projects is an e-brochure that can be updated continuously, as products launch, and sent via messaging services from representatives to customers.
“If you think about the end point, a digital social-selling beauty company — that’s the destination,” Zijderveld said last month.
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If the company were to do a deal, DA Davidson analyst Linda Bolton Weiser estimated the takeover price at $7.75 a share — about $3.4 billion. That estimate was based on Avon’s valuation when it was fielding takeover interest from Coty Inc. back in 2012 — and since then, the company has struggled to turn itself around.
“We doubt that the board and Cerberus would find it prudent to sell [Avon] when the share price is around $2, having reached a low based on a trend of deteriorating top-line growth,” Bolton Weiser wrote in a research note. “Natura perhaps sensed the last opportunity to make a run at [Avon] before Zijderveld presents his strategy.”
In an interview with WWD, Bolston Weiser elaborated, noting that approaching Avon could have been a defensive move for Natura. “It’s not so much like they need another big Brazilian business, they already have one — but it’s almost to prevent somebody else from getting it,” she said. Plus, if Avon’s directors are backing Zijderveld’s turnaround plan, it’s likely they are looking to give him some time to execute before trying to sell the company when its stock price is so low, according to Bolton Weiser.
“They’d be crazy to sell right now,” Bolton Weiser added, calling early signs “encouraging,” though cautioning that early signs under former ceo Sheri McCoy were also encouraging. “It’s a show-me story,” Bolton Weiser said. “There’s a lot of skepticism. He needs to provide a lot of meat and details of what he’s doing to fix [problems at the company].”
Another financial source noted that Avon has already pursued M&A options.
“The truth is, this thing has already been shopped every which way to Sunday, and I don’t know why all of a sudden Natura would want it,” said one financial source. “The price is much lower, and in theory you could blow it out in retail through The Body Shop and maybe see some synergies there, but the brand is in a tough spot and doesn’t have the ability to price up, which makes it harder to be successful in beauty these days.”