Coty Inc. announced it submitted a non-binding proposal to acquire Avon Products, Inc. for $23.25 per share in cash in a mutually agreeable and negotiated transaction. The proposal, valued at approximately $10 billion, represents a very substantial premium of 27% over the three month volume-weighted average price for Avon shares. Coty held discussions with its financing sources about obtaining the debt and equity financing necessary to complete this transaction, and is confident that such financing will be available.
This announcement follows multiple unsuccessful attempts for Coty to engage Avon in transaction discussions, and Bart Becht, Coty’s board chairman, commented, "Our objective is to engage in discussions with Avon and conduct due diligence so that we and Avon can together determine if there is a basis for a transaction.”
In response, Avon released a statement confirming it received an unsolicited, non-binding indication of interest from Coty Inc. to acquire Avon for the proposed transaction price. The statement says Avon's board of directors, consistent with its fiduciary duties, carefully considered an indication of interest from Coty that was substantially the same as one made less than two weeks ago. At that time, the board concluded, and it still believes, Coty's indication of interest is opportunistic and not in the best interest of Avon's shareholders.
In reaching this conclusion, the Avon board noted it had considered, among other things:
- Strategic direction, saying it remains confident in the company's stand-alone prospects.
- That Coty's indication of interest substantially undervalues Avon and is opportunistically timed, with the Avon board noting that it believes Coty's indication of interest, which offers Avon shareholders a 20% premium over the company's closing share price on March 30, 2012, does not reflect the fundamental value of Avon and its global beauty care franchise. The indication of interest represents a multiple of only 1.1 times Avon's net revenue for the fiscal year ended Dec. 31, 2011, and 8.7 times 2011 EBITDA.
- The completion of a CEO search, which the company commented that it is committed to, as well as executing against what the company believes are its strong long-term prospects. With a new CEO, Avon's board believes there is greater opportunity to improve shareholder value in excess of Coty's conditional indication of interest.
The statement also noted that the Avon board believes Coty's indication of interest does not constitute a real offer, as it is non-binding and, by its own terms, subject to numerous conditions such as financing, due diligence and the negotiation of a definitive agreement.
In the proposal letter to Avon's board of directors, Coty’s Becht detailed the proposed strategic and financial benefits of the combination, saying it would create an iconic beauty company and strengthen its position as a global leader in the beauty industry, as well as create new growth opportunities and benefit consumers by providing greater access to innovative, quality and branded beauty products across multiple distribution channels.
The letter from Becht also noted that Coty believes that its proposed price is a full and fair one, based on public information about Avon, and it is prepared to consider increasing its price if Avon can demonstrate through diligence that there is greater value, and commented that Coty committed to reinvesting a material part of the cost synergies of the combination to address Avon's operational issues and drive future growth.
Additionally, according to Coty’s letter, the combined company would draw on the strength and depth of Avon's team to enhance Coty's experienced and highly successful leadership team.