Shareholders file law suit against Avon

- Last updated on GMT

Related tags: Stock market, Avon

Avon shareholders have filed a class action lawsuit in New York,
claiming that the direct sales cosmetics giant failed to tell the
marketplace about the true state of its business, reports Simon
Pitman.

The suit charges Avon, and specifically certain directors, with violating the Securities Exchange Act of 1934 from April 8 to July 18 2005 - charges that Avon​ have still made no official response to.

In a statement from law firm Lerach Coughlin Stoia Geller Rudman & Robbins, it is claimed that the company and its executives made numerous positive statements about the company's performance as well as its future prospects.

"As alleged in the complaint, these statements were materially false and misleading because defendants failed to disclose and/or misrepresented adverse acts,"​ the lawyers statement read.

The suit refers to the fact that the company was experiencing increasing resistance to its expansion plans for the China market because local business were putting up opposition to the company's plans to resume direct selling in that market.

It also refers to the fact that revenue growth in the company's Central and Eastern European markets was dramatically slowing, when, in contrast, the company was making in contrast to internally forecast earnings projection that were unachievable. Further to this the company had not made it clear that its expansion plans in Russia had been delayed by a series of adverse factors.

As a result of all of these circumstances, the law firm stated that, "defendants lacked a reasonable basis for their earnings projection and positive statements about the company."

Avon made an announcement on July 19, 2005 that its earnings for the second quarter of 2005 would be below expectations because of the problems with the China retailers and lower than expected revenue in Central and Eastern Europe. The announcement wiped 14 per cent off share values on the day the statement was made.

As a result the law firm is seeking to recover damages on behalf of all purchasers of Avon's common stock during the specified period.

In an move that aims to boost the company's position, Avon yesterday confirmed that it intends to repurchase an additional $500 million in shares by the end of 2005 in an effort to fund its latest investment program through a long-term debt.

The $500 million buy-back is in addition to the company 2000-2005 share buy-back program, which has pushes up the total repurchase authorization to $1.5 billion, or 10 per cent of the company's current equity market capitalization.

Related topics: Business & Financial

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