Coty Inc., the seller of perfumes by Heidi Klum and Beyonce Knowles, offered to buy Avon Products Inc. (AVP:US) for about $10 billion as Chairman Bart Becht works to more than triple its sales.
The unsolicited cash proposal of $23.25 a share is 20 percent higher than Avon’s closing price on March 30. Coty, based in New York, said in a statement today it won’t pursue a hostile takeover. Avon in a separate statement rejected the bid, saying a deal wouldn’t be in the best interests of shareholders.
Buying Avon would give Coty, which is owned by the largest shareholder in European consumer-products maker Reckitt Benckiser Group Plc (RB), a new door-to-door channel for selling its cosmetics and more than twice its $4.5 billion in annual sales. At $10 billion, the takeover would be the biggest in the cosmetics and toiletries industry since Procter & Gamble Co.’s 2005 purchase of Gillette Co. for $57.3 billion including debt, according to data compiled by Bloomberg.
“Coty clearly wants to do this deal,” Ali Dibadj, an analyst at Sanford C. Bernstein & Co. in New York., said today in a telephone interview. “This is something that the Avon board should seriously consider.”
Avon rose (AVP:US) 19 percent to $23.10 at 9:51 a.m. in New York.
Becht, Reckitt Benckiser Group’s former chief executive officer, became Coty’s chairman in November. Becht grew Slough, England-based Reckitt Benckiser with acquisitions including Durex condom-maker SSL International Plc in 2010 and Adams Respiratory Therapeutics Inc. in 2007.
Coty, which holds perfume licenses for brands including Calvin Klein and Marc Jacobs, is owned by Joh A. Benckiser SE. Founded in 1904 in Paris by Corsican-born Francois Coty, the company helped develop perfume into a mass product, with 36 million consumers two decades later. Coty’s previous purchases include $400 million for a majority stake in Chinese skin-care company TJoy Holdings Ltd. in December 2010.
There have been almost 300 cosmetics and toiletries takeovers in the past decade, data compiled by Bloomberg show. The median price to earnings before interest, taxes, depreciation and amortization paid in 30 of those deals was 10.8, compared with the 8.9 Coty has offered to pay for Avon, Bloomberg data show.
Avon, based in New York, had $11.3 billion in sales (AVP:US) last year. The company is looking to replace Chief Executive Officer Andrea Jung after slowing sales and internal probes prompted a 40 percent drop in its shares last year.
Avon Losing Ground
Avon’s direct selling model is losing ground as more traditional retail develops in countries such as Brazil, where competitors such as Procter & Gamble and Estee Lauder Cos. (EL:US) are vying for spending from rapidly growing middle and affluent consumers. At the same time, business in developed market has lagged.
At Reckitt Benckiser, Becht was among the U.K.’s top- earning executives. He had a 90 million-pound gain on share options in 2009 and received more than 18 million pounds in compensation in 2010, including more than 14 million pounds from the exercise of options and performance-based restricted shares.
BDT & Co. is arranging equity financing for the deal, while JPMorgan Chase & Co. is working on debt financing, according to the statement. BDT, JPMorgan and Blackstone Group LP are providing financial advice to Coty, while Skadden Arps Slate Meagher & Flom LLP gave legal counsel.
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