Avon explores sale of North America business

15 Apr 2015

Avon Products Inc. is exploring options including potentially selling itself entirely or its struggling North American business, The Wall Street Journal yesterday reported, citing people familiar with the matter.

The 129-year-old New York-based beauty products company's fortunes have sharply diminished in recent years and its stock price has dropped 54.5 per cent over the past two years against an S&P rally of 36.3 per cent.

Avon doesn't have a deal on the table to sell itself or to hive off its North American operations, nor is one around the corner, but the company is open to all options, the report said.

It has hired Goldman Sachs and Centerview Partners to help evaluate its options, the report said.

This week, the company made a surprise decision to postpone its May investor presentation until this fall after concluding that far-reaching changes are needed, the report added.

The Wall Street Journal's report comes three years after Avon rejected a $10-billion unsolicited takeover offer from Coty Inc, the world's largest fragrance company. (See: Avon rejects Coty's $10 billion takeover offer)

From a peak market capitalization of $21.8 billion in June 2014, the company's market value has now fallen to just $4.1 billion.

Avon's shares jumped more than 14 per cent after The Wall Street Journal's report and closed yesterday at $9.15.

Avon, which sells its products to women in more than 100 countries, is now headed by Sheri McCoy, replacing Andrea Jung in 2012. Jung headed the company since 1999, making her the longest-serving female CEO currently in the Fortune 500 league.

Jung had come under fire from investors after the company's stock fell 30 per cent in 2011 and around 45 per cent in 2012.

Although McCoy became CEO in April 2012, she has not been able to rescue the door-to-door marketing structure of the company, which was the core of its success.

Avon's revenue in 2012 was $10.7 billion and operating loss was $38 million. Last year, the company posted revenues of $8.9 billion, but net loss from continuing operations soared to $385 million.

Its North America business dropped by 17 per cent last year and reported a loss of $72.5 million on annual sales of $1.2 billion

Although it got a head start from its early move into China, its biggest overseas market after Brazil, it is now suffering due to indecision over its retail model, while its North American and Mexican door-to-door representatives are leaving for other direct selling companies.

To make matters worse, the company last December had to pay $135 million to the US regulators as part of a settlement for bribing Chinese officials in order to allow it to sell products directly to consumers in the country. (See: Avon to pay $135 mn to US regulators to settle China bribing probe)

Its legal and other fees were more than $300 million, taking the total cost to more than $435 million.