Bloomberg News

Avon Board Said to Study Coty Due-Diligence Request

May 12, 2012

Avon Products Inc. shares have gained 16 percent this year. Photographer: Scott Eells/Bloomberg

Avon Products Inc. shares have gained 16 percent this year. Photographer: Scott Eells/Bloomberg

Avon Products Inc. (AVP:US)’s board is evaluating a due-diligence request from Coty Inc. that seeks information on future products, global expenses, headcount and legal liabilities as the board decides whether to start merger talks, according to people familiar with the matter.

The one-page, seven-bullet-point list, which has not been made public, was attached to Coty’s letter last week to Avon that raised the takeover offer to $10.7 billion from $10 billion, said one of the people, who wouldn’t be identified because the matter is confidential. New York-based Avon made the letter public while keeping the diligence list private.

Among Coty’s requests are that Avon give an understanding of its management structure and operations; detailed statements of profit, cash flow and balance sheets by country (AVP:US); and a review of research-and-development spending as well as all of Avon’s future products, said one of the people, who read from a copy of the list.

Coty also asked to review Avon’s treasury, credit, cash, tax and pension (AVP:US) situations; Avon’s global selling, general and administrative expenses; and its legal risks tied to the Foreign Corrupt Practice Act, said this person. Avon and the U.S. Securities and Exchange Commission are probing the company’s operations abroad for possible violations of the act, which prohibits executives from bribing foreign officials.

Reluctant Directors

Some Avon board (AVP:US) members are telling investors they are reluctant to turn over all of the information Coty is seeking, especially the future product details, said another person familiar with the matter. These investors have been pressing Coty executives to trim the list as soon as possible to persuade Avon’s board to begin talks before Coty’s deadline, this person said.

Asking for such a detailed breakdown is unusual in the early stages of a process, according to Erik Gordon, a professor at the University of Michigan’s Ross School of Business.

“At this point, what is appropriate is to ask for the kind of information that would justify a higher bid price,” such as a blockbuster new product in the pipeline, Gordon said in a telephone interview.

Coty raised its bid earlier this week and said the proposal had equity backing from Warren Buffett’s Berkshire Hathaway Inc. (A:US) The new offer, which has a deadline of May 14, is subject to due diligence and other conditions, according to Coty’s letter.

Avon said yesterday it would consider Coty’s letter “in due course.”

Representatives of both companies confirmed yesterday that they had been contacted by the SEC as part of a probe into suspicious trading around the time Coty made its offer. Both said they were cooperating. SEC spokesman John Nester declined to comment.

Coty Chairman Bart Becht is working to draw Avon into a deal that would add a new door-to-door distribution channel for Coty’s cosmetics.

Avon fell 3.4 percent to $20.19 at the close yesterday in New York. The shares have gained 16 percent this year.

To contact the reporter on this story: Jeffrey McCracken in New York at

To contact the editor responsible for this story: Robin Ajello at

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Companies Mentioned

  • AVP
    (Avon Products Inc)
    • $11.53 USD
    • 0.28
    • 2.43%
  • A
    (Agilent Technologies Inc)
    • $52.35 USD
    • 0.08
    • 0.15%
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