Avon Products has rejected a $10bn takeover bid from fellow cosmetics company Coty claiming that it had ‘substantially undervalued’ the company.
Avon today confirmed that it received an unsolicited, non-binding indication of interest from Coty to acquire Avon for $23.25 per share; an offer which Coty says represents a substantial premium on Avon’s average share price in the last three months.
Coty has made numerous attempts in the past to engage Avon in discussions regarding its proposal, all of which were unsuccessful, prompting the company to make its proposal public in an attempt to show Avon's shareholders there is value in a transaction.
Laying the foundations
"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,” said Bart Becht, chairman of the Board of Directors of Coty.
“We believe Avon's shareholders would want their Board to explore with us the benefits to shareholders of a transaction."
In a letter sent to current Avon CEO Andrea Jung, detailing the bid, Becht continues by stating: "We do not understand how your Board's unwillingness to discuss our proposal can serve the best interests of Avon's shareholders.”
However, that is exactly how the direct seller feels as it responded to the offer, and branded Coty’s attempts as ‘opportunistic’.
Offer ‘substantially undervalues’ Avon
“Coty's indication of interest substantially undervalues Avon and is opportunistically timed,” states the response.
“The Avon Board believes Coty's indication of interest, which offers Avon shareholders only a 20 percent 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.”
Coty’s proposal aims to form a new beauty company called ‘Avon-Coty’; drawing on both companies’ strengths; with Coty’s color cosmetic lines benefitting from Avon’s direct selling model.
However, under the circumstances, Avon's Board is convinced that rejecting Coty's indication of interest is in Avon shareholders' best interests, although Coty has suggested it could be back with another offer.
According to Reuters, Avon is worth only about $8bn today, down from an all-time peak of $21.8bn in June 2004.