Avon Products, Inc. announced that it has agreed to tender its 74.67% ownership interest in its Avon Japan business to an affiliate of TPG Capital, a global private investment firm that invests in companies across a broad range of industries and geographies. Under the terms of the agreement, TPG Capital will pay a total cash payment of 7.3 billion yen, or approximately U.S. $90 million, for Avon's stake in the business and for pre-paid royalties for certain intellectual property licenses.
As part of the transaction, TPG Capital is launching a tender offer in Japan for all outstanding shares of Avon Japan at 74 yen per share, the same price that Avon has agreed to for its shares. Avon's sale of its shares is not conditional upon TPG Capital's acquisition of the 25.33% minority stake. Avon Japan is the only subsidiary in Avon's geographic portfolio that is publicly traded (JASDAQ market of Osaka Securities Exchange 4915: JP).
The proposed transaction is subject to customary closing conditions and is targeted to close in the fourth quarter 2010. Avon said that the transaction would have no material impact on its financial statements as Avon Japan represents less than 2% of its total company sales. Effective with fourth quarter 2010 reporting, Avon Japan will be accounted for as a discontinued operation.
Avon said that the planned sale is consistent with its strategy to focus its portfolio and investments on direct selling markets with higher growth potential. In contrast to other Avon markets, Avon Japan generates more than half of its sales from direct mail, and a large portion of its sales come from products unique to Japan.
"We are pleased to conclude this agreement with TPG Capital as we further focus our investments on higher growth opportunities," said Andrea Jung, chairman and CEO, Avon. "While Japan is an important consumer market, our analysis indicates that we would need to commit significant additional investment in order to generate profitable growth in the near to intermediate term."
As part of the transaction, Avon has agreed to grant TPG Capital rights to its local Japan formulas and products and certain other formulas and products for use in Japan and, subject to certain restrictions, for use outside of Japan. Avon also has agreed to transfer to TPG Capital ownership of certain local Japan and other trademarks. In addition, for a period of time, TPG Capital will have rights to use the "Avon" name in Japan.
Avon Associates in Japan are expected to continue in their roles and the existing Avon Japan management team will continue to provide support during the transition. TPG Capital will also have all the necessary functions and services to enable the continued success of the company.