Fragrance maker Coty Inc. has sweetened its offer for Avon Products Inc. (AVP: Quote) to $24.75 per share and urged the cosmetics company to move forward with talks. In a letter sent to Avon's board of directors, Coty said it would withdraw its offer if Avon did not enter into talks with it by May 14.
Coty cited Avon's disappointing first-quarter results and outlook as well as its recent credit ratings downgrades as reasons for Avon to enter into talks for a merger deal.
Coty, which has Warren Buffett's Berkshire Hathaway Inc. (BRKa, BRK-A, BRK-B) as one of the equity financing sources for its bid, believes its offer would provide compelling value to Avon's shareholders "relative to a difficult and uncertain multi-year turnaround on a stand-alone basis."
Avon, which made the letter from Coty public Thursday, said its board will consider the letter "in due course." The revised offer price represents a premium of more than 36 percent to Avon's closing price on March 6 - the day before Coty's initial offer of $22.25 per share.
In early April, Coty offered to acquire Avon for $23.25 per share in an all-cash deal valued at about $10 billion. However, Avon immediately rejected the unsolicited bid and said it remains confident in its prospects as a stand-alone company.
According to Avon, Coty's offer substantially undervalued the company and was "opportunistically timed" while it was conducting a search for a new CEO after it separated the roles of chairman and CEO.
A week after it rejected Coty's offer, Avon appointed Johnson & Johnson executive Sherilyn McCoy as its new CEO to spearhead its turnaround plan.
In its letter dated May 9 and made public by Avon today, Coty said it had contacted Avon last week in an effort to end the deadlock. The company also said it was prepared to discuss an increase to its previous offer of $23.25 per share if substantiated through a three-week diligence process.
However, Coty noted that Avon was not prepared to engage in talks regarding any revised offer until it completed a strategic and operational internal review with its new CEO.
Coty said it has now urged Avon to conduct the review in parallel with considering its offer so that Avon's board could compare both proposals side by side and make the right choice for Avon shareholders.
Coty also said it was ready to sign a confidentiality agreement with standstill provisions that would restrict it from publicly taking further steps to acquire Avon, so long as Avon agreed to provide it with requested information on a timely basis.
Coty said that along with its equity sources, it was prepared to work until May 31 for a mutually agreeable basis for a transaction.
In order to end the uncertainty around the transaction, the company requested Avon to respond to its sweetened offer by close of business on Monday, May 14.
In Thursday's regular session, AVP is trading at $21.83, up $0.23 or 1.06 percent on a volume of 5 million shares.
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by RTT Staff Writer
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