Avon Investor Barington Urges Company to Avoid `Fire Sale'

  • Cosmetics seller says it welcomes shareholders' feedback
  • Shares climb on report that Avon is in talks with buyout firms

Avon Products Inc. investor Barington Capital Group urged the company to reject a reported deal to sell its North American business at a “fire sale” price, recommending that the cosmetics giant pursue a restructuring plan instead.

The shareholder, which is leading a group that includes NuOrion Partners AG and other investors, said Avon is significantly undervalued and needs new leaders, according to a statement on Thursday. Barington intends to nominate a slate of director candidates for the 2016 annual meeting in an attempt to gain sway over the board.

“Avon’s 6 million sales representatives, the backbone of Avon, deserve a senior management team that can reinvigorate the company and introduce new products and marketing campaigns that will resonate with customers," Barington said in the statement, which was sent to Avon’s board.

In addition to pushing for management changes, Barington wants the company to cut expenses, a move that it says would bring as much as $700 million in annual savings. Avon also should invest in operational improvements and increase its dividend, according to the investment firm, which said its group collectively owns more than 3 percent of the beauty company.

Avon said in a statement Friday that it was aware of Barington’s announcement and that it welcomes feedback from shareholders. The company said it regularly reviews a wide range of options for its business and operations.

‘Remain Focused’

"We remain focused on taking strategic actions to drive sustainable, profitable growth, address changing and challenging industry dynamics, create opportunity for our representatives and enhance value for all Avon shareholders," the company said.

Avon shares rose 7 percent on Thursday after the Wall Street Journal reported that the cosmetics company was in advanced talks to sell its North American business and an equity stake to Cerberus Capital Management. The stock climbed an additional 5.8 percent to $4.22 at the close in New York on Friday.

Avon and the private equity firm are aiming to agree to a deal this month, the Wall Street Journal said, citing people it didn’t name. The company’s statement on Friday made no mention of a potential deal with Cerberus.

While Avon struggles, some of its beauty-products rivals are thriving. Ulta Salon Cosmetics & Fragrance Inc. rose 13 percent on Friday after reporting third-quarter profit and sales that exceeded estimates. Earnings in the quarter were $1.11 a share, compared with the $1.05 that analysts predicted. Comparable-store sales rose 12.8 percent in the quarter. That beat the 9.4 percent estimated by analysts, according to Consensus Metrix.

Renewed Optimism

The Journal report renewed optimism that investors may be able to wring some value from Avon shares, which have been pummeled by three years of losses and the waning effectiveness of its door-to-door sales model. Avon also has struggled recently with currency fluctuations and a new industrial production tax in Brazil, resulting in an unexpected loss last quarter.

In its response, Barington said that selling a stake at the current stock price doesn’t make sense.

“We would oppose any sale of the North America business on terms that are disadvantageous to current shareholders or limit the options for a new senior management team to maximize long-term shareholder value,” the firm said. “We would also oppose a sale of a dilutive equity stake at a ‘fire sale’ price.”

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