Avon May Not Get a Better Offer

After Avon rejected Coty’s $10 billion offer yesterday, analysts said the company’s legal woes, CEO search and unique business structure make it an unwieldy fit for traditional beauty companies. Cash-rich companies, like Procter & Gamble, may be uncomfortable with Avon’s direct sales model and its inability to find a CEO.

Yesterday, Avon’s shares closed at $22.70, below Coty’s offer, a sign that arbitragers who profit from mergers and acquisitions are skeptical that a bidding war will break out. Coty’s unsolicited bid was almost 24% higher than Avon’s 20-day stock trading average, compared with a 30% average premium for takeovers of cosmetics and personal care companies worth at least $1 billion, according to data compiled by Bloomberg.

With no other suitors on the horizon, Bloomberg is reporting that Avon’s board sees the writing on the wall and may be willing to negotiate with Coty once a CEO is selected. For the record, Avon rejected that speculation and said it is focused on finding a CEO.

Avon’s is attractive due to its success in developing markets. For example, more than 45% of its $11.3 billion in revenues came from Latin America last year, vs. just 18.5% from North America. For its part, 57% of Coty’s sales are derived from fragrances. Observers say Coty is determined to reduce its exposure to scents by making headway into color cosmetics and skin care.

It’s not like Avon hasn’t been the subject, if not the target, of companies in the past. Back in 1989, for example, Mary Kay Cosmetics was in rumored to be a potential suitor. That was another unsolicited bid that went nowhere.