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Avon rejects Coty bid

by Lou Whiteman | Published April 2, 2012 at 1:01 PM

Privately held beauty products giant Coty Inc. on Monday, April 2, went public with a $10 billion bid to acquire Avon Products Inc. after the embattled target spurned private overtures about a potential deal. Avon swiftly rejected the bid as "opportunistic."

New York-based Coty is offering $23.25 per share in cash for Avon, a premium of 27% over Avon's three month volume-weighted average. Coty said it has held "extensive discussions" with financing sources, saying it was "confident" that debt and equity financing was available to complete the deal.

Shares of Avon soared 19.9%, or $3.85, on Monday to $23.21.

Coty in a letter to Avon's board signed by chairman Bart Becht said it went public with the offer after making three proposals in March, which it says Avon's board had "no interest" in discussing. Coty said it has no intention of pursuing a hostile acquisition, but "given our willingness to propose a purchase price at an attractive premium ... we believe it is very much in your shareholders' best interests for you to start a dialogue with us."

A struggling Avon reported a loss in the December quarter and is seeking a new CEO after Andrea Jung announced her intention to step down as chief executive but remain chairman.

The company is also the subject of allegations of bribery in China and improper contact with financial analysts. Standard & Poor's last month lowered its credit rating on Avon to BBB.

Coty, with annual sales of about $4.5 billion and brands including Calvin Klein, Chloe, Marc Jacobs, Sally Hanson and Adidas, said a deal would create "an iconic beauty company" with a broad range of sales channels and significant opportunities for growth, particularly in emerging markets where Avon is strong. The company said that it was prepared to consider increasing its offer "if Avon can demonstrate through diligence that there is greater value."

New York-based Avon in a statement Monday rejected the bid, saying that the price was substantially the same as an offer Coty made less than two weeks ago. "At that time, the board concluded, and it still believes, that Coty's indication of interest is opportunistic and not in the best interest of Avon's shareholders," the company said.

Avon in its rejection noted that Coty's offer is valued at just 1.1 times 2011 net revenue and 8.7 times Ebitda, an amount it called "significantly below multiples that the board ... believes an iconic consumer company is worth." Avon noted that Coty's offer is nonbinding, saying the suitor "is attempting to obtain a 'free look' at Avon in the absence of any commitment whatsoever to close a transaction at any price."

Based in New York and Paris, Coty is majority owned by German family holding company Joh. A. Benckiser GmbH and counts Berkshire Partners LLC and Rhone Capital LLC as minority shareholders. The company in November 2011 acquired lotion supplier Philosophy Inc. from Carlyle Group for just under $1 billion and nail polish maker OPI Products Inc. for a similar price.

J.P. Morgan Securities LLC has been tapped to arrange debt financing for the potential deal, with BDT & Co. LLC arranging financing from the Joh. A Benckiser companies and BDT Capital Partners along with selected limited partners in the BDT Capital Funds.

Coty is receiving financial advice from BDT, J.P. Morgan and Blackstone Advisory Partners LP, and legal advice from a Skadden, Arps, Slate, Meagher & Flom LLP team led by Paul Schnell and Neil Stronski.

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