Avon – best known for its ‘ding dong, Avon calling’ ads of the 1950s and 60s – had previously refused to enter into talks with Coty
Mass market perfume maker Coty has dropped its $10.7bn (£6.65bn) takeover bid for Avon Products, saying the US beauty company had missed a deadline to respond to its offer.
Coty had been stalking the cosmetics company since March, when it made an unsolicited bid of $10bn which had the financial backing of veteran US investor Warren Buffett. It improved its offer last week, but warned it would withdraw if Avon did not respond by Monday night.
Avon – best known for its “ding dong, Avon calling” ads of the 1950s and 60s – had previously refused to enter into talks with Coty, but said on Sunday in a two-sentence statement that it would look at Coty’s latest offer and respond within a week.
“Two months is enough,” said Coty chairman Bart Becht, the former chief executive of UK household goods group Reckitt Benckiser. He wrote in a letter to Avon dated Monday: “Your total lack of engagement with us leads us to believe that you remain reluctant to explore a friendly, negotiated combination on a reasonable timetable.”
This means that Avon’s new chief executive Sheri McCoy, a former Johnson & Johnson executive, will have to come up with an alternative plan to turn the company around. She will conduct a thorough business review this year but the recent poor first-quarter results – profits plunging to $26.5m from $143.6m a year ago – highlighted the scale of the challenge.
Coty, which makes the perfumes bearing the names of such celebrities as Madonna and Beyoncé, sweetened its unsolicited bid to $24.75 a share last Friday from the previously offered $23.25 a share.
The bulk of Coty’s sales come from Europe and North America. A tie-up would have given it access to fast-growing emerging markets such as Brazil, Russia and Mexico, where Avon’s door-to-door selling model works well, and beefed up its roster of products. Brazil is the third-largest beauty market in the world behind the US and Japan.
Avon claimed on Tuesday that it had responded “promptly” to Coty’s 9 May letter by disclosing it on 10 May and indicating that its board would consider the contents of the letter. Howewer, on Monday, five days after sending its letter, Coty withdrew its proposal, Avon said.
Coty had lined up equity financing from several parties, including its main shareholder, JAB – an investment company owned by four German billionaires – along with BDT Capital Partners and Berkshire Hathaway, which pledged to provide $2.5bn of the financing.
Coty’s take-it-or-leave-it offer mirrors Buffett’s dealmaking approach. He has always been clear that his firm Berkshire Hathaway does not get into bidding wars: it makes what it considers a fair offer and that bid is either taken up or not. Becht, who courted controversy with his £91m pay package in 2009, is also not someone who takes no for an answer. He had sidestepped the Avon board to appeal directly to its investors. A number of those shareholders thought Coty’s offer was too low but they wanted Avon to at least meet with Coty.
Coty said from the start it had no intention of making a hostile bid for Avon, which has nearly three times as much revenues as Coty.
Avon is battling declining sales and a loss of sales representatives, amid cutthroat competition from drugstores in the US and aggressive pricing by rivals in eastern Europe. Another issue are inadequate ordering systems that have frustrated representatives in Brazil.