On Thursday, Coty Inc. took its offer for Avon Products Inc. (NYSE:AVP) to the next level by increasing its bid 6.5 percent with a new $24.75 per share offer. It has also added some new firepower with Berkshire Hathaway Inc. (NYSE:BRK.A) (BRK.B) as a source of equity funding.
Warren Buffet’s company will join JPMorgan Chase & Co. (NYSE:JPM) in financing for a deal that is preying on an increasingly weakening Avon. In April, the company rejected a $23.25 per share offer by Coty. It subsequently hired a new CEO, Sherilyn McCoy. After losing out at a top spot at Johnson & Johnson (NYSE: JNJ), McCoy’s new Avon contract gave her a big payday should she lose her job if the company is sold.
McCoy will be tasked with finishing the embattled company’s turnaround as her tenure begins at a challenging time. In addition to already rejecting two of Coty’s offers, Avon’s debt rating was cut to almost junk status by S&P this week. S&P analyst Jacqueline Hui said to The Wall Street Journal, “We believe a material operating turnaround over the next year will be difficult.”
Not helping Avon’s story is last week’s report that its quarterly profit dropped 82 percent.
The scent of failure is strong and Coty has again swooped in to make a purchase. In a letter to Avon on Thursday, Coty wrote, “We remain keenly focused on understanding Avon’s operational and financial challenges, evidenced by your disappointing first quarter results and outlook, as well as your recent credit ratings downgrades.”
Avon’s response? Today the company said it “will consider the letter in due course.” According to The Wall Street Journal, Coty’s letter said, they believed a strategic review under McCoy’s helm needs to take place first, but it and Buffett are only are planning to wait until month’s end.
At the time of this writing, Avon’s stock is down 1.25 percent. On Wednesday, its shares rose almost 10 percent, after Coty’s owners, private holding company Joh. A. Benckiser, announced that it would sell approximately $2 billion of Reckitt Benckiser stock, according to CNN. This was a sign that another bid would soon follow.
