Takeover Offer on Avon with Many Uncertainties

Avon is not the best cosmetics company in the world… although it is probably one of the most famous, if not the most. The icon selling beauty products door to door has been immersed in a bid which has triggered the value of its shares but at the same time has raised many uncertainties.  

The stock has raised up to 20% on the NYSE after the publication of a statement sent to the SEC (US market regulator), mentioning a takeover offer of $18.75 per share for Avon, triple than its current market value. After the initial surge doubts has appeared; first for the extraordinary premium, very exaggerated, and the fact that the statement includes errors in the name of the company that would have submitted the tender (mentioning PTG Capital Partners, when the real name of the private equity is TPG Capital Partners) and because it quotes a law firm that does not exist, according to Bloomberg. As these doubts have spread market investors have stopped buying quickly and shares left advances behind.

These news cast more doubts on a company that already accumulated a long record of failure. Avon already accumulated three consecutive years of losses and decreases of sales, partly because the slightest interest in its products and in part by the senior executives decision of thinning the size to try to stop the bleeding of red numbers. Last published quarterly results showed a reduction of the losses by 12%, although their quarterly losses are still nearly $150 million.

In any case and regardless of the news of the possible takeover, the mythical firm has many challenges ahead. Perhaps the most important is what to do with its North American business, which accounts for about 15% of his total revenues.

Although it is in the DNA of the company, the fact is that for many years this business is a burden for the company and its sale would make sense for the company within that strategy to reduce size to be able to make money again. Investors speculated that this sale is on the table since one month ago, when the company cancelled its analyst day to have more flexibility to make decisions.