Coty Offers to Buy Avon Products for $10 Billion
April 2nd, 2012 by admin
BY MICHAEL J. DE LA MERCED
Coty said on Monday that it had offered to buy Avon Products for about $10 billion in cash, in what would be a potential blockbuster union of two major cosmetics companies. It would be the largest acquisition in the United States this year, according to Capital IQ.

Under the terms of its offer, Coty would pay $23.25 a share, a premium of 20 percent to Avon’s closing price on Friday and premium of 27 percent over Avon’s three-month volume-weighted average price. The new company would be called Avon-Coty.

Avon swiftly rejected Coty’s proposal, saying in a statement that the offer was “opportunistic” and not in its shareholders’ best interests.

Shares of Avon leaped more than 23 percent in premarket trading, to $23.98, above Coty’s offer price.

The bid comes as Avon continues to struggle on a number of fronts. The company has experienced years of declining earnings, and has been roiled by an continuing investigation into allegations of bribery by company executives in China.

In December, Avon announced it was seeking a successor for its longtime chief executive, Andrea Jung.

Last month, Avon’s credit rating was downgraded one notch byStandard & Poor’s. “Without a clear longer-term strategy in place, we are uncertain about the company’s ability to execute an operating turnaround over the next year,” the ratings firm wrote in a report.

Since hitting a high of $30.91 in May, shares of Avon have fallen 37 percent.

Coty said it privately reached out to Avon three times last month, but was rebuffed by the company’s board. Despite making its intentions public on Monday, however, Coty said it had no intention of pursuing a hostile bid.

“Our objective is to engage in discussions with Avon and conduct due diligence so that we and Avon can together determine if there is a basis for a transaction,” Bart Becht, Coty’s chairman, said in a statement. “We believe Avon’s shareholders would want their board to explore with us the benefits to shareholders of a transaction.”

The deal would be the biggest ever by Coty, a privately held cosmetics company. Coty has been on a buying spree in recent months, paying $400 million  for TJoy Holdings, a Chinese skin-care company, and a reported $1 billion for the skin-care company Philosophy in December alone.

Among Coty’s other brands are Calvin Klein, Marc Jacobs and Rimmel.

Despite the high price, Coty expressed confidence in its ability to pay for the Avon deal. It is obtaining debt financing fromJPMorgan Chase and equity financing from BDT Capital, the firm run by a former Goldman Sachs banker, Byron D. Trott. BDT has already lined up funds from Coty’s owner, Joh. A Benckiser, and unidentified partners.

Coty is also being advised by the Blackstone Group and the law firm Skadden, Arps, Slate, Meagher & Flom.