Avon Products Inc. (AVP) said it will respond within a week to Coty Inc., the perfume-maker that last week boosted its takeover offer for Avon to $10.7 billion.
Avon and its board and advisers will consider Coty’s latest offer, the world’s largest door-to-door cosmetics seller said yesterday in a statement. Today is the deadline for Coty’s latest bid. Coty and its advisers will meet today to discuss whether to let the offer lapse, a person familiar with the matter said yesterday.
Last month Avon rejected Coty’s original bid of about $10 billion, saying the offer undervalued the company. New York- based Avon has since appointed former Johnson & Johnson (JNJ) executive Sherilyn McCoy as chief executive officer and has said it’s focused on turning around its operations after three years of declining profit.
“They are taking care to look at the new offer and figure out whether they need to respond to it in a different way than the first offer,” Gregg Fatzinger, head of the consumer banking group at Nomura Securities International in New York, said today in a telephone interview. “I think it’s the right dance to go through.”
Avon rose 4.2 percent to $21.04 at 11:04 a.m. in New York. The shares gained 16 percent this year before today.
Acquiring Avon would give Coty Chairman Bart Becht a strong presence in Brazil and other emerging markets and add a new door-to-door distribution channel for the New York-based company’s cosmetics that would more than double its $4.5 billion in annual sales.
Coty’s latest offer is $24.75 a share, up from a previous bid of $23.25. To add firepower to the bid, Coty secured equity financing from Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) Berkshire will provide $2.5 billion of the more than $5 billion in equity from BDT Capital Partners, which is backing the bid, a person familiar with the matter said last week.
Avon’s board has been evaluating a due-diligence request from Coty that seeks information on future products, global expenses and headcount as the board decides whether to start merger talks, people familiar with the matter said last week.
Coty, which makes perfumes by Heidi Klum and Beyonce Knowles, also wants information on possible legal liabilities, said the people. Avon and the U.S. Securities and Exchange Commission are probing whether executives bribed foreign officials in violation of the Foreign Corrupt Practices Act.
Some Avon board members are telling investors they are reluctant to turn over all of the information Coty is seeking, especially the future-product details, said another person familiar with the matter.
Richmont Holdings, a closely held company that invests in consumer brands, has been working on its own bid for Avon, according to two people familiar with the matter.
There have been about 280 takeovers in the cosmetics and toiletries industry in the past decade, the largest being Procter & Gamble’s (PG) $57.3 billion takeover of Gillette Co., according to data compiled by Bloomberg. The median price to earnings before interest, taxes, depreciation and amortization paid in almost 30 of those deals was 10.8 times, in line with Coty’s new offer.
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