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Coty Withdraws $10.7B Avon Bid

AVP

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Following Avon Products Inc’s (AVP - Analyst Report) statement dated May 13th that it will consider the new bid and respond within a week, Coty Inc. withdrew its revised $10.7 billion takeover bid, stating that it failed to receive an explanation from Avon for the one week extension. 

Coty, in its letter dated May 14, informed Avon that it is no longer interested in the buyout given the latter’s reluctance to enter into discussion regarding the proposal since its initial offer made two months ago.

Earlier in April, Avon had turned down Coty’s $10 billion public bid to buy Avon, citing that the bid price of $23.25 per share undervalued the company. Avon’s rejection came after Coty publicly sought Avon in a discussion regarding the buyout. Previously, Coty’s three proposals to Avon’s CEO failed to bring Avon to a discussion or to arouse any interest in the buyout deal.

On May 9, 2012, privately-held beauty company Coty approached cosmetics maker Avon, with an inflated buyout bid offering to pay $24.75 per share, an increase of $1.50 a share from $23.25 per share proposed earlier last month. The total value of the revised bid came to about $10.7 billion, against $10 billion offered earlier. The new bid represented a 36% premium on Avon’s closing price as of March 6, 2012. The new bid is subject to due diligence and other conditions.

Coty regrets Avon’s decision to reject a compelling and well-financed proposal, particularly given the multiple challenges that Avon is facing. Coty’s offer included equity financing commitments from its main shareholder, Joh. A. Benckiser, BDT Capital Partners and some of its limited partners, and Berkshire Hathaway Inc. The company had also tied up with J.P. Morgan Securities for debt financing.

According to Coty, the combination would have created an iconic beauty company that would further provide new growth opportunities for both the companies. Through the deal, the company expected consumers to reap benefits through superior access to innovative, quality and branded beauty products across multiple distribution channels.

Additionally, the combination would have benefited the combined company’s product categories as each company’s forte in product offerings complement the other. Coty is a leader in Fragrances and Nail Products, while Avon’s core strength lies in Color and Skin, and Body products. As per the offer, the new company will be named Avon-Coty.

Founded in 1904 by a perfume maker, Coty is a leader in global beauty with annual net sales of $4.5 billion. The company has grown into a supplier of fragrances and nail polishes, having a portfolio of notable brands. The company sells its products to consumers in about 135 markets worldwide.

Avon Products is a leading global beauty company targeting women consumers in over 100 countries through 6.5 million independent sales representatives. The company faces stiff competition from other direct-selling companies as well as companies selling through prestige retail channels. One of the prime competitors of Avon is Revlon Inc. .

Avon currently retains a Zacks #5 Rank, which translates into a short-term Strong Sell rating. Our long-term recommendation on the stock is Neutral.

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