L'Oreal rumored to be in talks over Avon takeover bid

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Investors are taking rumors over a potential Avon take-over bid so seriously that share prices have risen significantly in the past couple of days.

The source of the rumors was an article that appeared in yesterday's online edition of UK daily newspaper the Daily Mail.

Although the newspaper did not name its source, the article stated that ‘several big industry players' were interested in making a bid, and named L’Oreal as the highest profile bidder.

L'Oreal said to be offering top dollar

According to the article, L’Oreal is believed to be lining up a bid to the value of $44 a share, a significant premium given the current market price, and one that is believed to have had a an impact on yesterday’s share price rally.

The rumored bid price is approximately 40 percent above the current share trading price and would put the value of the company at an estimated $19bn.

Avon Products had a $10.4bn turnover and made just over $1bn in profits during 2009. It employs around 41,000 staff and sells its products in 140 countries worldwide through a direct sales force.

Unilever and P&G, too?

The world’s two other biggest personal care players, Unilever and Procter & Gamble, are also thought to be closely watching the situation, especially given the fact that if Avon is acquired, it could have a serious impact on global competition in the cosmetics industry.

L’Oreal has performed well in the first six months of this year, putting behind it a disappointing performance in 2009, one of the first years in almost a generation when profits actually shrunk.

However, the company’s finances remain in good shape, and given the continued recovery, many market observers believe the Paris-based company could be readying to make a significant purchase, if the right opportunity presents itself.

The take on competition

If the fit bid rumor is founded, the next step would be to discover just how well the Avon business might fit with L’Oreal, or any of the other major players that have also been mentioned.

The fact that Avon is a direct sales, therefore following a very different business structure to the other big players in the industry, may prove challenging to incorporate into another type of business structure.

Likewise, competition authorities would also be likely to closely scrutinize such a deal if it involved any of the big cosmetics players, which could lead to certain business activities being carved up and sold off to fullfill acquisition requirements.

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