Coty Went Public With Avon Offer to Press Board, Becht Says

Coty Inc. Chairman Bart Becht
Coty Inc. Chairman Bart Becht. Photographer: Chris Ratcliffe/Bloomberg

Coty Inc. Chairman Bart Becht said he went public with the offer for Avon Products Inc. so shareholders will press the company’s board to consider a merger and allow Coty access to confidential financial documents.

“We’ve been interacting with them and getting nowhere,” Becht said in an interview today after New York-based Avon rejected Coty’s $10 billion takeover offer as too low. “We’ve made a public announcement because we are hopeful their shareholders will talk to the board.”

The companies have discussed the idea of Becht running a combined Coty-Avon and Becht said it “would not be helpful” for Avon, which said last year it was looking to replace Chief Executive Officer Andrea Jung, to hire a new CEO in light of Coty’s $23.25-a-share bid.

Becht is seeking to expand sales of Coty’s perfumes to emerging markets such as Brazil, where Credit Suisse Group AG says Avon has about 1.2 million salespeople. The deal, which would more than triple Coty’s sales, would be the largest in the industry since Procter & Gamble Co.’s 2005 purchase of Gillette Co. for $57.3 billion including debt, according to data compiled by Bloomberg.

Coty is interested in conducting due diligence, in part because of concern about Avon’s internal investigation into allegations executives bribed foreign officials, he said.

“There will be cost synergies, but they have to be re-invested in Avon,” Becht said. “We don’t know the specific numbers and we won’t until we do diligence and can get some exact numbers to confirm synergies.”

Financing Arrangements

Coty is confident about financing for the takeover, Becht said. Coty made a verbal offer to Avon at the beginning of March, and the companies have had one face-to-face interaction, Becht said. That meeting included Becht, Jung and Avon board member Fred Hassan, according to a person familiar with the matter. Hassan also is a managing director at private-equity firm Warburg Pincus LLC.

“Coty clearly wants to do this deal,” Ali Dibadj, an analyst at Sanford C. Bernstein & Co. in New York., said today in a telephone interview. “This is something that the Avon board should seriously consider.”

Avon sees some strategic benefits in a combination with Coty and previously considered buying the fragrances seller, according to a person with knowledge of the situation. Those talks began when Coty had proposed selling itself to Avon, said the person, who declined to be identified because the matter is private.

Avon is close to choosing a replacement for Jung and could become open to talks once a CEO is selected, the person said.


“We are committed to hiring a new CEO and executing against what the company believes are its strong long-term prospects,” Jennifer Dwyer Vargas, an Avon spokeswoman, said in an e-mailed statement. “The board has been clear that with a new CEO, it believes there will be greater opportunity to improve shareholder value.”

Avon may be looking for a higher price and may have to sell itself if it can’t improve its results, said Don Yacktman, president of Yacktman Asset Management Co., which manages about about $17 billion, including 15.5 million Avon shares. Avon has posted three straight years of profit declines.

Coty “wants to put Avon in play and find out if anybody else wants to make a comparable bid,” Yacktman, whose company is based in Austin, Texas, said today in a telephone interview. “It forces Avon’s hand to some degree. They have to do some things to show why they aren’t going to consider the offer.”

Avon rose 17 percent to $22.70 at the close in New York. The shares declined 40 percent last year.

Expanding Reckitt Benckiser

Becht, the former CEO of Reckitt Benckiser Group Plc, became New York-based Coty’s chairman in November. Coty is owned by Joh. A Benckiser SE, which is also the biggest shareholder in Reckitt Benckiser. Becht expanded Slough, England-based Reckitt Benckiser with acquisitions including Durex condom-maker SSL International Plc in 2010 and Adams Respiratory Therapeutics Inc. in 2007.

Coty, which holds perfume licenses for brands including Calvin Klein and Marc Jacobs, is owned by Joh. A Benckiser. Founded in 1904 in Paris by Corsican-born Francois Coty, the company helped develop perfume into a mass product, with 36 million consumers two decades later. Coty’s previous purchases include $400 million for a majority stake in Chinese skin-care company TJoy Holdings Ltd. in December 2010.

Coty said that Avon has a “strong presence” in emerging markets, where it gets 68 percent of its revenue. Avon’s door-to-door distribution system in countries such as Brazil and China will create growth and earnings opportunities for Coty, which derives 26 percent of its revenue from emerging markets, according to a statement today.

Latin America

“Avon also brings with it manufacturing facilities in China and Brazil, both key targets for Coty,” Vivienne Rudd, head of Beauty & Personal Care Insight at Mintel in London, said today in an e-mail. “Latin America is Avon’s largest region, and the only one to turn in sales growth in its fourth quarter. It is also a region where Coty’s coverage is relatively light, hampered by the lack of a cohesive prestige retail channel.”

Coty Chief Executive Officer Bernd Beetz said in an interview in February that the company was working on expanding in developing markets. Beetz said in a separate interview in January that selling shares to the public is also an option for Coty.

There have been almost 300 cosmetics and toiletries takeovers in the past decade, data compiled by Bloomberg show. The median price to earnings before interest, taxes, depreciation and amortization paid in 30 of those deals was 10.8, compared with the 8.9 Coty has offered to pay for Avon, Bloomberg data show.

Bribery Investigation

Avon is investigating potential violations of the Foreign Corrupt Practices Act, which outlaws bribing foreign officials. Avon also said in October that the U.S. Securities and Exchange Commission is probing the company’s foreign operations and its dealings with analysts.

At Reckitt Benckiser, Becht was among the U.K.’s top-earning executives. He had a 90 million-pound gain on share options in 2009 and received more than 18 million pounds in compensation in 2010, including more than 14 million pounds from the exercise of options and performance-based restricted shares.

Goldman Sachs Group Inc. and Centerview Partners LLP are advising Avon. BDT & Co. is arranging equity financing for Joh A. Benckiser, while JPMorgan Chase & Co. is working on debt financing, according to the statement. BDT, JPMorgan and Blackstone Group LP are providing financial advice to Coty, while Skadden Arps Slate Meagher & Flom LLP gave legal counsel.

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