Fragrance maker Coty, Inc. has proposed Monday to acquire cosmetics maker Avon Products, Inc. (AVP) for $23.25 per share in an all-cash deal valued at about $10 billion.
However, Avon immediately rejected the unsolicited bid, deeming the offer as "opportunistic and not in the best interest of Avon's shareholders." Avon added that it remains confident in its prospects as a stand-alone company.
Coty said it made the public offer after several attempts to engage Avon in talks to reach a deal failed, but added it does not intend to make an hostile offer.
Avon said Coty's offer substantially undervalues Avon and is opportunistically timed when it searches for a new CEO after it separated the roles of chairman and CEO in 2012. Andrea Jung, who has been Avon's CEO since 1999, will be named executive chairman.
"The Company remains committed to its publicly stated path of completing the CEO search and executing against what it believes are Avon's strong long-term prospects," Avon's Board noted.
The offer price of $23.25 per share represents a 20 percent premium to Avon's closing price of $19.36 on Friday. Following the announcement, Avon shares are trading higher by more that 19 percent as it strives to reach the offer price.
"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. We believe Avon's shareholders would want their Board to explore with us the benefits to shareholders of a transaction," Coty Chairman Bart Becht said in a statement.
In a letter to Avon's Board, Becht revealed the strategic and financial benefits of the combination, saying that the premium offers shareholders immediate value for their holdings. Coty also confirmed its willingness to sweeten the offer through discussions and following due diligence.
The letter states that Coty raised its initial offer of $22.25 made on March 7, and also sent two other letters on March 19 and March 30, calling for Avon to engage in discussions to reach a mutually agreeable deal. However, it was surprised and disappointed that Avon's Board showed no interest in a discussion to explore our acquisition proposal.
Coty added that it expects to complete due diligence quickly and move forward with a mutually agreeable deal if Avon cooperates. Coty also said BDT & Company, LLC is arranging equity financing, and J.P. Morgan Securities LLC is arranging the debt financing for the deal. It is confident that such financing will be available.
The combination would create an iconic beauty company and strengthen its position as a global leader in the beauty industry. The proposed acquisition paves the way for Coty to achieve its goal of becoming a $7 billion beauty company by 2015.
Coty is the world's largest fragrance company with annual sales of nearly $4.5 billion. It has focused on astute acquisitions, development of its power brands and licensing partnerships to achieve a leadership position in fragrance, and to emerge as a global leader in the world of beauty.
by RTT Staff Writer
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