Who will invest in Avon now?

By Simon Pitman

- Last updated on GMT

Who will invest in Avon now?

Related tags Avon Stock The downward spiral

Avon has been the focus of much debate in recent months. Substantiated or not, sale rumors have led to spikes in the share prices, but things look ominously quiet now, as the company’s share price continues to dip.

The downward trend follows a brief uptick in share prices last month, when a Wall Street Journal article suggested that Avon was looking into ‘strategic alternatives’ for its North American business.

But investor confidence was short-lived, with the word on the street being that Avon is having significant problems, underlined by a New York Post article last week suggesting that potential buyers are struggling to finance an offer.

Share prices at historical low

This week the share price for the company dipped to a new low of just below $7.00, prompting many experts to believe that securing any more future investment may look all the more elusive under the current circumstances.

The story behind Avon’s quest to secure outside investment has been long and protracted.

Coty made a number of offers for Avon back in 2012 which were all rejected by Avon executives, decisions that probably do not look so wise with hindsight.

In May 2012 Coty made a final offer for the business that was worth a little over $10bn. In view of the downward spiral seen in the company’s financial performance, that offer now looks solid.

Coty says it is no longer interested in buying up Avon, which has seen its annual sales revenue fall by more than 20% in the past year, to approximately $8bn.

P&G portfolio sale puts Avon in the shade

But what has really changed the investment landscape of late is the fact that Procter & Gamble is in the midst of one of the biggest business sell-offs the industry has seen in many years.

According to insider reports, last month the sale of up to 100 P&G brands got into full swing​. Experts estimate that the deal could rake in a sales tag of up to $19bn, as the brands represent approximately 10% of the company’s annual $83bn in revenues.

The big problem for Avon is the fact that this massive portfolio of P&G brands is now on the market, which is detracting from other big international players such Unilever, Henkel and L’Oreal, who could all potentially be in the bidding race.

Poor financial results and mounting debts

Poor financial results could not have come at a worse time, either.

Last Thursday the company posted an 18% fall in its revenue for the first quarter, a figure that was hit hard by negative currency translations, but North American revenues also fell by 18% during the period, without the impact of currency translations. All of this resulted in a $147m loss.

And one last major issue is the state of the company’s own borrowing, which, according to an analyst at Sanford Bernstein, currently looks precarious, particularly as it could have to break a loan covenant on its $1bn revolver if things do not pick up by the end of the year.

 With these kind of challenges to face, it is difficult to see what the future holds for Avon. Or if there is a future at all.

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