Will Avon’s challenges threaten its chances of outside investment?

By Simon Pitman

- Last updated on GMT

Will Avon’s challenges threaten its chances of outside investment?

Related tags Stock market Avon

Avon continues to fight against seemingly never-ending challenges that have battered the company’s stock market performance. Just in the month of September share prices plummeted more than 37%, leading experts to question the possibility of outside investment.

Last month's decline came in a year when share prices have now fallen by a total of 55% to reach and all-time low of $3.20 on September 28th​.

Although share prices have lifted slightly, peaking at $4.33 on the 8th​ of October, the situation still looks extremely challenging for Avon, and could threaten attempts to attract much-needed outside investment, according to investment experts.

Possibility of Avon selling a stake at a reduced price

“Because Avon is struggling, striking such a deal with outside investors could mean selling a stake at a significant discount to Avon's current trading price,”​ wrote Steve Symington, a contributor to online investment resource Motley Fool, in a blog post.

Alternatively, if Avon is indeed facing a cash shortage, and ultimately unable to come to terms with one of these investors, it could potentially be forced to commence a dilutive secondary offering to raise the cash it requires.”

Speculation remains as Avon continues its quest to attract much needed investment in the business, with a number of news sources reporting that the company is in advanced negotiations with private equity companies.

Good news, bad news

The better news came in the first week of September, and caused share prices to spike, but the following week, Probes Reporter highlighted an undisclosed SEC probe. An Avon spokesperson later contacted Cosmetics Design to confirm that the probe is undisclosed and at this point there is no confirmed investigation.

Regardless of whether or not the probe is a threat, the company is also facing a cash shortage, as it is hit by rising costs associated with its restructuring as well as falling sales, worldwide.

The cash shortage comes at a time when potential private equity investment, which could include players Cerberus and Platinum Equity, will be looking for some cash reserves to fulfill their investment requirements.

Avon Products is due to announce its third quarter results within the next two weeks, but with sales for the second quarter falling 17% and the company still battling a strong dollar against international currencies and continued weakness in the mainstay domestic market, conditions remain harsh.

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