New Avon CEO severance pay deal underlines buy-out possibility

By Simon Pitman

- Last updated on GMT

Avon Products has revealed details of the package brokered by new Chief Executive Officer Sherilyn McCoy, which points to the real possibility of a future buy-out.

The package details state that McCoy will receive three times her salary as a severance bonus, should she leave after a change of ownership takes place at the direct sales business.

According to an Avon regulatory filing, McCoy will be paid a base salary of $1.2 million, together with a cash bonus of $1.8 million. The package also details a bonus of $1.91 million, together with a a three-year, long-term incentive program that will lead to an annual target of $7.2 million.

McCoy, 53, will assume leadership at Avon as of April 23, 2012, having enjoyed a 30 year career at Johnson & Johnson, where she was responsible for skin care brand Neutrogena, amongst others.

Severance package tailored around Avon's situation

Industry analysts have been quick to point out that the standard severance package is usually about two times the yearly executive salary in the case of a change of ownership.

Although it is purely speculative, many believe that this clause in McCoy’s benefits package suggests she has brokered a deal that has been tailored around the distinct possibility of a future change of ownership.

McCoy’s negotiations probably centered around continuing speculation over the future of the company, which has been hit by investigations into bribery focusing on executives in China, as well as significant challenges in the western European markets that have led to stunted growth.

Investor speculation

Those issues have led to investor jitters, which has gradually eroded the share value of the company over the past year, exposing it to increasing buy-out speculation.

That speculation culminated in a hostile take-over bid by fragrance company Coty that was made public at the end of last week. Coty offered to buy Avon for an estimated $10bn, an offer that was rejected by the company.

Coty has made numerous attempts in the past to engage Avon in discussions regarding its proposal, all of which were also unsuccessful, prompting the company to make its proposal public in an attempt to show Avon's shareholders there is value in a transaction.

Analysts believe that given the company’s continued challenges and the fact that it follows a direct sales model, making it a difficult fit in the portfolio of most potential suitors, Coty’s rejected offer may be hard to beat.

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