American personal care products manufacturer Avon has rejected $10bn acquisition bid by fragrance and cosmetics company Coty’s, stating it as opportunistic and not in the best interest of the its shareholders.
Avon said that Coty’s indication of interest undervalues the company and offers shareholders only a 20% premium over the firm’s closing share price on 30 March 2012.
Coty has made a public non-binding proposal of acquisition on April 02, 2012 – after failing to involve Avon in the preliminary discussions to explore the acquisition – in its attempt to convey the benefits of the transaction to Avon’s shareholders.
Through the proposal, Coty intended to a create a combined entity Avon-Coty, with an objective to focus on providing consumers and account representatives innovative, quality and branded beauty products across distribution channels.
However, Avon has declined the offer saying that it lacks Avon’s and its global beauty care franchise fundamental value reflection.
Avon claims that the bid also is 1.1 times Avon’s net revenue for the year ended 31 December 2012 and 8.7 times 2011 earnings before interest, taxes, depreciation and amortization (EBITDA), which is below the multiples the Board of Directors believes the firm is worth.
Coty’s interest is non-binding and by its own terms is subject to various conditions including financing, due diligence and the negotiation of a definitive agreement, the company said.
Coty, with respect to its letter dated 30 March 2012, added that, following diligence, it reserves the right to raise or lower its price to acquire Avon and also is aiming to obtain a new look at Avon in the absence of any commitment whatsoever to close a transaction at any price.
Avon said that it is publicly committed to hiring a new CEO to execute its strong long-term prospects; and the board firmly believes that there is greater opportunity to improve shareholder value in excess of Coty’s conditional indication of interest.
