Avon Products Inc. (AVP:US), the world’s largest door-to-door cosmetics seller, fell the most in more than six months after Coty Inc. withdrew its $10.7 billion offer.
Avon slid (AVP:US) 11 percent to $18.68 at 10:17 a.m. in New York, the biggest decline in the Standard & Poor’s 500 Index. The shares earlier fell 14 percent for the largest intraday drop since Oct. 27. The stock had gained 20 percent this year before today.
Coty, the maker of perfumes by Beyonce Knowles and Heidi Klum, said attempts to speak to Avon board members, including Chairman Andrea Jung and Chief Executive Officer Sheri McCoy, failed after it received a two-sentence e-mail requesting a deadline extension. Coty had given yesterday as a cutoff date for a response when it made its $24.75-a-share bid last week.
“This continued delay and unwillingness to engage in discussions is disappointing,” Coty Chairman Bart Becht said in a letter to Avon’s board (AVP:US) that was released in a statement. “It is time for Coty Inc. to move on and pursue other opportunities.”
Avon, which rejected an initial $10 billion offer last month, yesterday asked for another week to consider the higher bid as the deadline for an answer expired.
Coty said it had equity commitments for the bid of more than $5.8 billion from Joh. A. Benckiser, BDT Capital Partners and Warren Buffett’s Berkshire Hathaway Inc. (A:US) with debt financing to be provided by JPMorgan Chase & Co. (JPM:US)
“Your total lack of engagement with us leads us to believe that you remain reluctant to explore a friendly, negotiated combination,” Becht said.
Avon, in a separate statement, confirmed that Coty had withdrawn its proposal. The company said it responded “promptly” to Coty’s May 9 letter by disclosing it and indicating the board would consider the contents.
“Five days after sending its letter, Coty withdrew its proposal,” Avon said.
Becht targeted Avon to add a door-to-door distribution channel for Coty’s cosmetics and more than double its $4.5 billion in annual sales from brands including Calvin Klein, Cerruti, Marc Jacobs and Wolfgang Joop.
“The Avon bid was uncharacteristic for Coty, and I imagine Coty’s feeling a bit bruised,” Vivienne Rudd, a personal-care industry analyst at Mintel International, said by phone.
Potential targets for Coty now include Natura Cosmeticos SA of Brazil, Oriflame Cosmetics SA (ORI), the beauty care unit of Japan’s Kao Corp., France’s Yves Rocher Group, and L’Occitane International SA (COC), Rudd said. Coty also may consider an initial public offering, she said.
“The signs were that if the Avon deal went through it would have been a public company,” said Rudd, who is based in London. “Clearly, it’s feeling ready to look beyond the private model.”
Coty’s withdrawal may hurt its credibility in future offers, said Erik Gordon, a professor at the University of Michigan’s Stephen M. Ross School of Business.
“Coty’s idea of a friendly offer gives new meaning to being a friend,” he wrote in an e-mail. “Who wants to be courted by someone who makes odd demands and goes a little whacky when you don’t immediately comply?
The company also is facing an investigation into possible bribery in its overseas operations. In regulatory filings last year, Avon said it had fired four executives suspected of paying bribes to officials in China. The company also disclosed an internal investigation into its compliance with the Foreign Corrupt Practices Act.
There have been about 280 takeovers in the cosmetics and toiletries industry in the past decade, the largest being Procter & Gamble Co.’s $57.3 billion takeover of Gillette Co., according to data compiled by Bloomberg. The median price to earnings before interest, taxes, depreciation and amortization paid in almost 30 of those deals was 10.8 times, in line with Coty’s new offer.
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