Coty Inc disclosed on Monday that it had offered US$10 billion for Avon Products Inc, but the larger company, which is grappling with sliding sales and a bribery probe, rejected the bid as too low and “opportunistic.”
Combining Coty, maker of Stetson aftershave and Beyonc fragrances, with Avon, the world’s largest direct seller of cosmetics, would give Coty less reliance on fragrances and a bigger share of growing overseas markets.
Investors sent Avon’s stock price soaring as high as US$23.38 on Monday after news of Coty’s offer. The shares closed up 17.3 percent at US$22.70.
Coty chairman Bart Becht said in an interview that Coty and Avon started talking a few months ago about a merger that would have had Avon buying Coty in exchange for shares.
He said when no offer came from Avon, Coty made a verbal offer, followed by three letters last month to Avon CEO Andrea Jung (鍾彬嫻).
“Their board fully acknowledges the financial and strategic rationale, so it is something that should happen,” Becht said.
Avon declined to address Becht’s comments.
Avon, known for its iconic “Ding Dong, Avon Calling” commercials of the 1950s and 1960s, said in its most recent annual report, released in February, that developing markets accounted for more than two-thirds of its sales.
Coty said in a statement on Monday that it made its offer public after unsuccessfully trying to engage Avon in merger talks. It said it had no intention of making a hostile bid.
“We hope by having made public our offer ... that their shareholders will talk to their board and that the board will start engaging with us,” Becht said.
The company said it was willing raise its bid, provided it was given access to Avon’s financial records to decide whether a higher offer was warranted.
Such due diligence would take about a month or so, Becht said.
Less than an hour after Coty went public with its unsolicited bid, Avon issued a statement saying the US$23.25 per share offer “substantially undervalues” the company.
It is a 20 percent premium over Friday’s closing price of US$19.36 and US$1 higher than a previous offer.
Michael Bigger, founder of trading firm Bigger Capital, called the offer “too cheap.”
Investors and analysts predict that Coty will again raise its price, following the classic playbook in dealmaking.
Avon, which is searching for a replacement for Jung, said a new CEO would create “greater opportunity” to increase its value.
The company said in December last year that Jung, who has been CEO since 1999, would step down. Jung will stay on as executive chairman after her successor takes the helm.
The company has had declining sales in markets such as the US, Brazil and Russia. Its famous army of “Avon ladies” sales representatives is shrinking because of uncompetitive commissions and stiff competition.
Avon has been bedeviled by heavy competition from drugstores in the US, aggressive pricing by rivals in eastern Europe and inadequate ordering systems that have frustrated representatives in Brazil, its biggest market.
Coty, a fast-growing privately held company that is majority-owned by German group Joh. A. Benckiser GmbH, is confident it can line up the necessary financing to pull off the acquisition of a company with revenue that is nearly three times greater than its own, and retain its investment-grade debt rating.