Avon’s Crisis Draws Takeover Interest From Richmont

by Trefis Team
Avon Products
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Avon Products‘ (NYSE:AVP) stock tumbled this week after reporting a steep decline in its Q1 profits. The business continues to remain significantly compromised and could see further weakening in its key Brazilian and U.S. markets, making the task of stabilizing the company even more challenging for its new CEO Sherilyn McCoy.

The stock slightly recovered on Thursday after speculation of a new take over bid from Richmont Holdings. Avon rejected a $10 take over bid from Coty last month. It sells its products to the end-consumer through direct-selling and has an active global sales force of over 6 million sales representatives. This business model separates it from peers such as L’Oreal (PINK:LRLCY), Procter & Gamble (NYSE:PG), Estee Lauder (NYSE:EL) and Unilever (NYSE:UL).

Bad Gets Worse

After a dismal performance in the latter half of 2011,  Avon’s Q1 sales and earnings continued to slide lower than previously expected. Its net income fell by a huge 82%, hurt by cost pressures and restructuring charges. The stock fell 8% soon after announcing the results on Tuesday.

The stock has lost almost 30% value in the last six months with declining sales, business disruptions, costly SEC investigations into alleged overseas bribery and the delay in appointing a new CEO to replace Andrea Jung. It is currently reassessing its long-term business strategy to plan its recovery. However, its compromised state of affairs has made it susceptible to hostile take-over bids during rough times.

Picks Up After Fresh Take Over Speculation

The stock of the besieged direct selling beauty company picked up on Thursday after speculation that Richmont Holdings was considering arranging a fresh bid for Avon. Richmont was once one of Avon’s big shareholders. [1] Last month, Avon rejected an unsolicited $10 billion takeover bid from a small rival Coty despite repeated advances, calling the offer undervalued and opportunistic. Read more here.

We are in the process of revising our $23 Trefis price estimate for Avon stock.

  1. Avon shares close up on report of takeover bid, Business Week, May 2012 []
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