Breaking News on Cosmetics Formulation & Packaging in North America

Speculation mounts that Avon may become a buyout target

By Simon Pitman, 16-Nov-2011

Related topics: Business & Financial

As Avon shares hit a year low this week, speculation is mounting that the company may become a buyout target over weak financial results and an executive bribery scandal in China.

Investment analysts believe the company is looking increasingly vulnerable to investment speculators, with a widely-read article published by online investment publication Seeking Alpha and penned by an anonymous takeover analyst, suggesting that the company is now an activist and buyout target.

The unfolding drama concerning the company’s investigation by the SEC has continued to dog the company this month, with shares falling by a total of nearly 17 percent on the New York Stock Exchange since the beginning of the month.

Biggest drop in share value in ten years

The fall is also the biggest drop the company has seen in its share value in ten years, evinced by the fact that shares are currently trading at $17.81 a share, compared to over $30 a share back in June of this year.

“The stock is now at an exceptionally low multiple, despite its strong brand name and diverse products offerings,” the investment analyst stated. “Thus, the case for a value gap certainly exists.”

At the beginning of this month the company reported that dollar sales for the quarter were up by 1 percent to $2.8bn, while foreign exchange contributed a further 5 percent increase in sales to 6 percent, as the weak dollar continued to boost foreign currency income.

Third quarter results add to the problem

Third quarter income from continuing operations was slightly down, from $166.7m in the corresponding quarter last year, to $164.2m – a figure that was hit by continuing weakness in developed markets and further impacted by logistical problems in the all-important Brazil market.

The flat sales were attributed to distribution problems in the Brazil market, together with a 7 percent fall in North American sales, a performance that was counterbalanced by a particularly strong performance in Central and Eastern Europe, together with AME and Western Europe.

At the time, Avon CEO Andrea Jung commented that the company no longer expects to meet its stated target of mid-single digit revenue growth, adding that it is now re-assessing its long-term business plan and targets, which will be revealed in an investor meeting scheduled for the first quarter of the year.