Avon CEO Appointment Raises Doubt over Coty Deal

Avon Appoints Johnson & Johnson’s Sherilyn McCoy As CEO
Avon Products Inc. named Sherilyn McCoy Chief Executive Officer a week after the door-to-door cosmetics seller rejected a $10 billion takeover offer from Coty Inc. Source: Johnson & Johnson via Bloomberg

Avon Products Inc.’s naming of Johnson & Johnson’s Sherilyn McCoy as chief executive officer may delay the company’s turnaround efforts and decrease the chances of a takeover by Coty Inc., analysts said.

Hiring McCoy, 53, shows Avon is serious about proceeding with its turnaround plan and reinforces that it isn’t interested in Coty’s $10 billion takeover offer, said Lauren DeSanto, an analyst for Morningstar Inc. in Chicago. That plan may take longer under McCoy, a 30-year veteran of J&J, who may need time to learn the company’s rare door-to-door sales model.

“She doesn’t have direct sales experience, and there’s concern that no deal is going to happen,” DeSanto said in a telephone interview. “Not to say that she isn’t a capable leader, but Avon does face a unique set of problems that are pretty serious.”

McCoy will be working to reverse three years of profit declines and complete an investigation into Avon’s overseas business practices all while ousted CEO Andrea Jung remains as chairman. The company last week rejected a $23.25-a-share cash offer from Coty, which said it took the offer public to convince shareholders to pressure the board into accepting.

Avon fell 3.1 percent to $22.69 at the close in New York. The shares have tumbled 19 percent in the past 12 months. The stock rose 17 percent on April 2, the day Coty made its offer.

McCoy takes over at Avon on April 23 after 30 years at J&J, beginning as a research scientist and most recently as vice chairman of the pharmaceutical and consumer division. She had been considered for that company’s CEO job, which went to Alex Gorsky in February.

Chemical Engineering

McCoy, a chemical engineer by training who collected four patents while at J&J, was one of two executives in the running to succeed William Weldon as CEO as the company tried to rebound from product recalls. J&J announced Feb. 22 that the post will go to Gorsky, who oversees medical devices and the company’s supply chain. Avon began looking for Jung’s replacement in December.

“It’s someone who has an excellent reputation from J&J, but it’s also someone who doesn’t have a lot of experience in this business, so it will take a while for her to get up to speed and set up a plan,” said Ali Dibadj, an analyst at Sanford C. Bernstein & Co. in New York. “Either it takes a while for the plan to come to fruition, or Andrea Jung is still at the helm, neither of which are a short-term positive for the stock and Avon’s investors.”

Avon’s board saw a unique set of skills in McCoy as it conducted a search of candidates across the direct selling and consumer-product industries, said Jennifer Vargas, a spokeswoman for Avon.

Drug Approvals

At J&J, McCoy oversaw businesses generating about $39.4 billion in revenue, more than three times the $11.3 billion in sales Avon had last year. She helped engineer a turnaround in J&J’s pharmaceutical division that garnered five new drug approvals last year. The unit also recalled dozens of brands of consumer medicines, including Tylenol and Benadryl, during her tenure as over-the-counter sales slumped.

Before taking over the pharmaceutical division in 2009, McCoy ran the company’s Surgical Care Group. Earlier, she served as head of the company’s medical devices division in Latin America.

McCoy’s hiring should be viewed as good news because it shows Avon could attract an executive with extensive experience, said Connie Maneaty, an analyst at BMO Capital Markets in New York.

“Concerns that investors had that a new CEO wouldn’t have authority” with Jung on the board should be alleviated, Maneaty said in an interview. “Someone who has gotten as high as Sheri has in a very big organization is not going to come to Avon in any subservient role.”

Coty Offer

While Avon turned down Coty’s offer, it previously considered buying the company, a person with knowledge of the situation said last week. Avon sees strategic benefits to a tie-up and may be open to talks once a CEO is selected, said the person, who declined to be identified because the process is private.

Coty Chairman Bart Becht said last week that it “would not be helpful” for Avon to hire a new CEO.

Tom Johnson, a spokesman for Coty, declined to comment today.

Avon had been focused on finding an executive with overseas experience to replace Jung, a person familiar with the matter said last week. More than 80 percent of Avon’s sales last year came from outside North America. J&J generated 56 percent of sales outside the U.S. last year.

The company is dealing with internal and federal investigations into whether executives bribed foreign officials in violation of the Foreign Corrupt Practices Act.

“You need someone who he is heroic with super powers to pull this together,” Morningstar’s DeSanto said. “It doesn’t get any tougher than this.”

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