Word that the beleaguered Avon Products Inc. could be close to taking private equity money gave investors something of a sugar high — a big boost that faded quickly and eventually left the stock depressed.
It’s just the latest wild swing in what has been a wild ride for Avon. The stock traded as high as $5.10 Thursday, or up 12.6 percent on the hope of some new investment, but closed at $4.10, off 9.5 percent. The move had some analysts scratching their heads as more than 40 million shares traded hands, well above the 7.5 million daily average for the past three months.
The door-to-door beauty company’s shares are down about 70 percent from a year ago and have been subject to not just big moves, but a hoax that sent the stock soaring in May with a fake takeover bid.
Avon has been in discussions with private equity investors for years, even prior to Sheri McCoy’s arrival as chief executive officer in 2012. But several financial sources noted that it’s been difficult to get a full buyout deal done. One source said the math simply doesn’t work, particularly with the strong dollar given that Avon’s earnings come from overseas while its costs are at home.
Sources told WWD that Avon has continued to work with investment bank giant Goldman Sachs as it explore its options.
Most recently, the firm was said to be considering a private investment in public entity, or PIPE, deal, with a private equity company. Cerberus Capital Management and Platinum Equity are said to be among the interested parties, according to a report by The Wall Street Journal Thursday. Avon, Cerberus and Goldman declined to comment and Platinum did not immediately respond to a query.
Bids are said to be due next week in a PIPE auction.
An investment by Cerberus Capital Management and Platinum Equity, both known to make distressed investments, could give Avon more breathing room as it works to turn around its business.
One financial observer said the move, should it materialize, would be similar to the $200 million investment that Blackstone Group made in shoe company Crocs in late 2013. The cash infusion gave Blackstone a 13 percent stake in Crocs, which at the time had seen the popularity of its plastic clogs wane.
Avon faces similar issues, struggling to find its place in the competitive landscape and update its direct selling model for the digital age while having to spend millions to respond to a Foreign Corrupt Practices Act investigation into how it went about building its business in China. In July, the firm said its net loss for the first half tallied $118.5 million as revenues declined 17.2 percent to $3.62 billion.
Active representatives — the company’s lifeblood — were down 2 percent in the second quarter, led by a continued decline in North America offset somewhat by growth in the Europe, Middle East and Africa division and, most significantly, Russia.
Avon now has a market capitalization of just $1.8 billion, showing just how far the company has fallen since it torpedoed Coty Inc.’s $10 billion overture in 2012. Coty moved on after a protracted struggle and is now putting together a $12.5 billion deal to absorb a big piece of Procter & Gamble Co.’s beauty business.