Coty woos Avon shareholders, outlines financing
Avon cosmetics / Photo: Avon
Avon swiftly rejected Coty's $10 billion offer two weeks ago. Coty has not raised its offer price, saying it needs more details about issues at the company, including a government investigation into possible bribery. Avon, eager to prove it can fix its own problems, tapped Sherilyn McCoy last week to replace Andrea Jung as CEO after a months-long search.
On Monday, Coty outlined some details of its financing, including more than $5 billion of equity commitments and a letter from JP Morgan saying it is highly confident it can arrange about $9 billion of debt financing.
Shares of Avon are currently trading slightly below Coty's offer price of $23.25 per share.
"For us to determine what the best price possible is, all we're asking for is due diligence," Bart Becht, chairman of privately held Coty, said on a conference call hosted by Bernstein Research.
He asked shareholders on the call to reach out to both Avon and its board, to tell them that they support Coty's advances and that Avon should engage with its smaller rival.
He said Coty would try to speak with other Avon shareholders this week. There were more than 200 shareholders on the call, representing well over 50 percent of Avon's shares, Becht said.
"Shareholders should also realize that Coty will not stick around forever," Becht said.
Coty has no plans to go hostile with its offer for Avon and if the offer falls through, at some point it may look at going public itself, he said.
Shares of Avon were down 1.7 percent at $23.11 on Monday afternoon on the New York Stock Exchange.
Avon is seeing declining sales at home and in key markets including Brazil and Russia. It also faces a probe by U.S. regulators into allegations of bribery overseas.
"Without due diligence there is nothing to discuss, quite frankly, on price. We are completely working in the dark here," Becht said.
A spokeswoman for Avon said on Monday that its board of directors had concluded on April 2 that Coty's offer at $23.25 per share is "opportunistic and does not reflect the fundamental value of the company and its global beauty care and direct selling franchise."
BDT Capital Partners, founded by former Goldman Sachs Group Inc partner and longtime Warren Buffett confidant Byron Trott, and privately held investment company Joh. A. Benckiser will provide more than $5 billion of equity commitments toward the deal.
JPMorgan Chase & Co has provided a "highly confident letter" with about $9 billion of debt financing, Becht told Reuters. Roughly $4 billion of that will go toward refinancing $2 billion of Coty debt, and $2 billion of Avon debt.
"Right now we have commitments for the $23.25. We will go back to our various parties to see what we should do post-due diligence," Becht said.
Coty said it intends to structure the financing in order to keep its investment grade credit rating.
Becht declined to comment on Avon's new CEO, who will join from Johnson & Johnson on April 23. But he said if the deal is negotiated, it will give Coty the opportunity to "pick the best of both boards and management teams to strengthen the company and have it be managed better." He also said he would consider a seat on Avon's board.
A combined Avon-Coty would be better off as a private entity for the first couple of years, Becht said.
Avon's former shareholder, Richmont Holdings, was reported last week to be preparing a takeover offer for the beauty products company, according to Fortune magazine.
Richmont Chairman John Rochon had unsuccessfully tried to buy Avon in the late 1980s when he was the chief executive at privately held rival Mary Kay, Fortune said.
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