On Thursday, privately held Coty came courting Avon once more with a beautified bid of $10.7 billion and the backing of none other than iconic investment guru Warren Buffett.
In a letter to Avon's board, Coty listed Buffett's Berkshire Hathaway (NYSE: BRK.A, BRK.B) as a new equity financing provider, along with German conglomerate Joh A. Benckiser and other anonymous clients of BDT Capital Partners.
Buffett and other financiers helped push up Coty's newest offer from $23.25 a share to $24.75 a share, a 36% premium to Avon's share price before the original offer was publicly disclosed.
Coty has made it quite clear how much it wants Avon, and adding Buffett to sweeten the deal could be what finally works.
"I don't think there's any better way to get Avon's attention than to say, "I've got the smartest investor in the world, with the deepest pockets in the world behind me, listen up,'" Jeff Matthews, author of "Secrets in Plain Sight: Business & Investing Secrets of Warren Buffett," told Bloomberg News.
Buffett's Rare Move
The Buffett move is a rare change for the deal maker who customarily shies away from hostile bids, and who is usually an outright buyer instead of financier.
But Buffett was won over by BDT's founder, Byron D. Trott, Berkshire's favorite banker.
"He understands Berkshire far better than any investment banker with whom we have talked and – it hurts me to say this – earns his fee," Mr. Buffett wrote in his 2003 letter to shareholders.
Buffett's previous financing ventures include helping Mars Inc.'s $23 billion takeover of the Wm. Wrigley Jr. Company in 2008, and providing about $3 billion in equity financing to Dow Chemical Co.'s (NYSE: DOW) $15.4 billion takeover of fellow chemical maker Rohm & Haas.
The Coty letter said the new deal would "provide compelling value to Avon's shareholders" compared with Avon's other option, "a difficult and uncertain multi-year turnaround on a stand-alone basis."
"Given the challenges facing your business, we believe the premium is even higher when considering your potential stock price in the absence of a possible transaction," Coty chairman Bart Becht wrote to Avon.
Avon appeared not to be threatened, and said it would consider the letter in due course.
Avon's Mounting Woes
Coty is after Avon's emerging market footprints and door-to-door sales network, which it hopes can peddle plenty more Coty products.
Coty added some shimmer to its original offer after Avon, the legendary door-to-door beauty company, released a disappointing quarterly earnings report last week in which it revealed margins tumbled much more than expected. Avon also cautioned of extended weakness in its largest market, Brazil.
The report followed a string of ugly quarters that have scarred Avon.
Also blemishing the once highly revered beauty company was an internal bribery probe – under investigation since 2008 – which eventually sent its longtime CEO Andrea Jung packing her cosmetic bag at the end of last year.
Avon in April brought in Sherilyn McCoy, a former Johnson & Johnson (NYSE: JNJ) executive, as the new CEO to polish its turnaround strategy.
Turning around on its own, however, could prove too difficult.
Still blushing from its tarnished past, Avon faces myriad problems. They range from operational issues, such as the failed implementation of an information technology platform in Brazil, to creating a new and improved backdrop for global sales. In addition, Avon needs a plan on how it can shower its loyal consumers with more options than just its legendary door-to-door sales.
Avon asked Coty for a three-week due diligence process and the opportunity to engage in private negotiations.
But Coty wants an answer. It has set an expiration date of Monday, May 14 for Avon to respond to the offer or it will shelve the proposal.
And Avon might keep holding out.
"I don't think they will (take up the offer). They know that the current bid is too cheap," Michael Bigger, founder of trading firm Bigger Capital, which holds Avon shares, told Reuters. "Cosmetics is a great business. It deserves a premium. If I were them, I would ask for $28 or more."
Coty maintains it is prepared to sign a confidentiality agreement with standstill provisions that would restrict it from publicly taking further steps to acquire Avon, as long as Avon agrees to supply requested data in a timely manner.
Avon, up 14% so far this year, finished off more than 3% Thursday at $20.89, a sign investors don't trust the company will move quickly on Coty's enhanced offer. Avon shares slipped more than 4% by 12:30 p.m. EDT Friday to $20.02.
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