- Investor group had criticized Avon for making ‘fire sale’ deal
- Barington Capital and allies to help pick independent director
Avon Products Inc., the cosmetics giant that cleaved itself into two parts earlier this year, reached a settlement with activist investors that will stave off a potential board fight.
Barington Capital Group and NuOrion Partners AG, which have criticized Avon’s management, agreed to back down in exchange for helping pick an independent director for the board, according to a statement Monday. The nominee will be chosen jointly with Cerberus Capital Management, Avon’s biggest backer. The activists also said they support Avon’s addition of former FedEx Corp. executive Cathy Ross to the board.
Avon shares jumped as much as 8.6 percent to $4.65 in the wake of the accord. The stock was up 5.7 percent this year through the end of last week.
The settlement follows a tumultuous four months for Avon and its investors. In early December, the makeup company forged a deal to sell its North American operations to Cerberus, a private equity firm. The move prompted Barington and its allies to threaten a proxy fight, saying that Avon was unloading the business at a “fire sale” price.
As part of the Cerberus deal, the private equity firm acquired an 80 percent interest in the North American division for $170 million. It also invested $435 million in Avon, which will use the funds on a global turnaround. The company has suffered four years of losses and declining sales, hurt by consumers shifting away from its door-to-door sales model.
Barington cooled its rhetoric after Avon unveiled a cost-cutting plan on March 14. The makeup seller is eliminating about 2,500 jobs and will relocate its corporate headquarters from New York to the U.K. -- a move with potential tax benefits. Avon aims to save as much as $70 million by 2017.
Barington welcomed the focus on cost savings, while saying there was “more that needs to be done.” The activist group, which owns more than 3 percent of Avon, held discussions with management to air its concerns. It’s now withdrawing its board nominees for the 2016 annual shareholder meeting.
“We have spent time with Avon’s management team and members of the board discussing our strategic and operational suggestions,” Barington Chief Executive Officer James Mitarotonda said in Monday’s statement. “We are confident that Avon is taking the necessary actions to improve the long-term performance of the company.”
The pact between the company and the activists was previously reported on Sunday by Dow Jones.