Earlier today Coty
(the company behind Cool Water, J.Lo, Bottega Veneta fragrances and more) wrote to Avon's Board of Directors announcing that it has submitted a non-binding proposal to acquire Avon Products
for $23.25 per share in cash in a mutually agreeable and negotiated transaction. The offer was later rejected by Avon who said that the offer "does not reflect the fundamental value of Avon and its global beauty care franchise".
Coty had made unsuccessful attempts to engage Avon in discussions regarding its proposal so Coty decided to make its proposal public in order to inform Avon's shareholders of the significant value in a transaction. Coty said it had "no intention of pursuing an acquisition on a hostile basis."
Bart Becht, Chairman of the Board of Directors of Coty said of the earlier offer: "Our objective is to engage in discussions with Avon and conduct due diligence so that we and Avon can together determine if there is a basis for a transaction. We believe Avon's shareholders would want their Board to explore with us the benefits to shareholders of a transaction," said Mr. Bart Becht, Chairman of the Board of Directors of Coty.
In a letter written to Avon's Board of Directors, Coty outlined some of the benefits of the aquisition, which included:
- The combination would create a new strong company in Beauty to be called "Avon-Coty."
- Coty is an innovation leader in Fragrances and Nail Products, while Avon has more core strength in Color and Skin and Body Products
- Distribution of appealing Coty mass beauty brands via Avon's "door to door" distribution channel will [...] create new and attractive growth and earnings opportunities for "Avon - Coty" and its 6.4 million account representatives.
Later today, Avon confirmed that they had recieved and "carefully considered an indication of interest from Coty", though stated it was "was substantially the same as one made less than two weeks ago" and "not in the best interest of Avon's shareholders."
Coty's indication of interest substantially undervalues Avon and is opportunistically timed: The Avon Board believes Coty's indication of interest, which offers Avon shareholders only a 20% premium over the Company's closing share price on March 30, 2012, does not reflect the fundamental value of Avon and its global beauty care franchise. Indeed, the indication of interest represents a multiple of only 1.1 times Avon's net revenue for the fiscal year ended December 31, 2011 and 8.7 times 2011 EBITDA. This is significantly below multiples that the Board of Directors believes an iconic consumer company is worth in a change of control transaction.
Coty's indication of interest does not constitute a real offer: Coty's indication of interest is non-binding and, by its own terms, subject to numerous conditions such as financing, due diligence and the negotiation of a definitive agreement. Coty's letter to Avon dated March 30 alludes to the possibility that, following diligence, Coty reserves the right to raise or lower its price to acquire Avon. In the final analysis, Coty is attempting to obtain a "free look" at Avon in the absence of any commitment whatsoever to close a transaction at any price.
We will update on this story if anything further happens.