Bloomberg News

Coty Said to Flip From Seller to Avon Buyer

April 03, 2012

Bart Becht, chairman of Coty Inc. Photographer: Chris Ratcliffe/Bloomberg

Bart Becht, chairman of Coty Inc. Photographer: Chris Ratcliffe/Bloomberg

For months, perfume maker Coty Inc. tried to sell itself to Avon Products Inc. (AVP:US) with little progress, according to people with knowledge of the situation. By February, Coty’s board had finally lost patience.

Coty at that point decided instead to pursue a bid for Avon, a company more than twice its size with $11 billion in annual sales (AVP:US), said the people, who declined to be identified because the talks were private. That culminated yesterday in New York-based Coty going public with its $10 billion offer for the door-to-door seller of cosmetics and skin-care products.

“We’ve been interacting with them and getting nowhere,” Coty Chairman Bart Becht said yesterday in an interview. “We’ve made a public announcement because we are hopeful their shareholders will talk to the board.”

While Becht has been leading the negotiations, Coty had expressed interest in a deal with Avon even before he joined the company last November, said the people. Avon, also based in New York, rebuffed Coty’s latest offer of $23.25 a share, saying that the price is too low and the offer lacks committed financing. Avon is also focused on finding a new chief executive officer to replace current CEO Andrea Jung.

Avon rose 17 percent yesterday to $22.70. The stock slipped 0.8 percent to $22.51 at 10:10 a.m. New York time today.

New York Meeting

Coty made a verbal takeover offer to Avon at the beginning of March in a meeting in New York that included Becht, Jung and Avon board member Fred Hassan, the people said. Hassan also is a managing director at private-equity firm Warburg Pincus LLC and the chairman of Bausch & Lomb Inc. (BOL:US)

The executives discussed the strategic rationale of a deal and Becht expressed his concern about charges of bribery at Avon offices overseas, the people said. Avon has been investigating the matter, which caused its stock price to plunge, for the past several years.

Coty then detailed its offer in letters on March 7, 19 and 30, according to an April 2 letter to Jung from Becht made public by the company. Coty told Avon late last week it was likely to put out a statement if Avon didn’t decide on the offer over the weekend, one person said.

“We were surprised and disappointed that Avon’s board of directors has no interest in a discussion to explore our acquisition proposal,” Becht said in the letter.

Avon’s View

Avon sees some strategic benefits in a combination with Coty and studied the logic of a merger for several months, said a person familiar with the matter. It had yet to conclude whether to pursue a transaction or not when Coty flipped its position from seller to buyer, said the person.

Coty’s next steps, as soon as this week, will be to begin meeting with some of Avon’s shareholders and to provide Avon proof of fully committed financing, said two people.

Jennifer Vargas, a spokeswoman for Avon, declined to comment. A spokesman for Coty referred to Becht’s comments.

Coty also said in the letter that it is lining up financing with JPMorgan Chase & Co. (JPM:US) and ex-Goldman Sachs Group Inc. (GS:US) banker Byron Trott. Coty’s majority owner, Joh. A. Benckiser, and investors in Trott’s BDT Capital Partners investment firm will provide the equity financing, while JPMorgan will arrange debt financing. JPMorgan, BDT and Blackstone Group LP (BX:US)’s advisory practice are all acting as advisers to Coty.

Benckiser Holdings

For Becht, a deal with Coty would follow purchases made as Reckitt Benckiser Group Plc (RB/)’s CEO until last year. During his tenure, the Slough, England-based consumer-products maker expanded by buying Durex condom-maker SSL International Plc (SSL) in 2010 and Adams Respiratory Therapeutics Inc. (ARXT:US) in 2008.

The companies have discussed the idea of Becht running a combined Coty-Avon, and Becht said it “would not be helpful” for Avon, which said last year it was looking to replace Jung, to hire a new CEO in light of Coty’s $23.25-a-share bid.

Joh. A. Benckiser is the biggest shareholder in Reckitt Benckiser and also owns luxury-goods maker Labelux Group GmbH. The group is backed by the Reimann family, which has an estimated fortune of 8 billion euros ($10.7 billion), fifth on a list of richest Germans, according to Manager Magazin in 2010. Peter Harf, who joined Joh. A Benckiser more than three decades ago, runs the group.

While pursuing a deal with Avon, Coty also held meetings with as many as 10 banks last week to discuss an initial public offering as equity markets start to rebound, one person said. Coty told the banks yesterday it would defer a decision on a share sale in light of the Avon offer, the person said.

Coty’s main motivation for doing an IPO would be to gain a public stock that could be used to fund more acquisitions, Chief Executive Officer Bernd Beetz said in a February interview. Coty is interested in buying companies to expand in emerging markets such as Asia and Russia, Beetz said.

To contact the reporter on this story: Jeffrey McCracken in New York at jmccracken3@bloomberg.net

To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net


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Companies Mentioned

  • AVP
    (Avon Products Inc)
    • $11.57 USD
    • 0.04
    • 0.35%
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