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Buyout Bid: Avon Rejects Coty’s Second Offer Of $10 Billion

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(Photo: Stock.xchng)
(Photo: Stock.xchng)

FINANCE

  • Avon says offer not in best interest of company
  • 80% of Avon’s revenue comes from overseas
  • Purchase would allow Coty to meet its revenue goal of $7 billion

Avon Products Inc. has rejected a $10 billion bid by Coty Inc. to purchase the struggling beauty-products seller. This was the second bid by Coty, which made a first bid in March that was also rejected.

Avon says the bid is too low, and that there is no difference between it and the previous one. Coty is willing to increase its bid if Avon can prove it is worth more, but Avon says the bid is nonbinding and does not constitute a real offer.

"Coty is attempting to obtain a 'free look' at Avon on the absence of any commitment whatsoever to close a transaction at any price," Avon said in a statement.

Coty has stated it will not pursue a hostile takeover.

Based in New York City, Coty is best known for its Calvin Klein fragrances and celebrity perfume lines, and it also owns Sally Hansen, OPI and Davidoff. Coty’s goal is to increase revenue to $7 billion by 2015, something it can easily do if it purchases Avon.

In the past two years, Coty has expanded its business, buying OPI and Philosophy Inc. If successful, Avon would be its largest acquisition, and the purchase would also be the largest in the retail sector since 2007.

Coty sells products in 135 markets worldwide.

Trouble for Avon in America

Founded in 1886, Avon has recently fallen on troubled times. The past three years have been particularly difficult. North American sales have fallen to the point that 80% of the company’s revenue comes from overseas.

In 2008, Avon closed its Newark, NJ, warehouse. It has since cut more jobs and restructured the company.

That same year, the company began being investigated by The Securities and Exchange Commission for bribery. In December 2011, under increasing pressure from critics, Avon announced it would replace chief executive officer Andrea Jung, who will stay on as chairman of the board.

Avon has been given a rating of “watch for possible downgrade” by Standard & Poor's Ratings Services.

Financial analysts say there is a good chance Avon will be purchased in the future. But, as one analyst cautioned, it would be difficult for a traditional consumer company to incorporate a direct sales model.

Key Statistics - Make-Up Market in NAFTA countries (source: MarketLine)

  • In 2010, the countries that make up the North American Free Trade Agreement (the United States, Canada and Mexico) had a cosmetics industry with a market value totaling close to $8 million.
  • Over 2006–2010, the fastest growing make up market was in was Mexico, with a CAGR of nearly 5%.
  • The leading make up country in the NAFTA group is the US; in 2010, its market revenue totaled more than $6 million.
  • In 2015, the US is predicted to maintain the lead of the cosmetics industry in the NAFTA bloc, with a forecasted value of close to $7 million.

By Melina Druga for
Melina Druga is an American writer and editor. She is the author of Enterprising Women: Practical Advice for First Time Entrepreneurs.

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