OREANDA-NEWS. February 09, 2016. Avon Products, Inc. (NYSE: AVP), a leading global beauty company, and Cerberus Capital Management, a New York-based private investment firm that specializes in improving operating performance and building long-term value of the businesses in which it invests, today announced that they have signed definitive agreements to drive enhanced focus on Avon's international markets, revitalize Avon's North American business, and deliver long-term value to Avon shareholders.  

The partnership, which has been approved by the Avon Board of Directors, includes a \\$605 million equity investment by affiliates of Cerberus. There are two components:

  • Cerberus will make a \\$435 million investment in Avon Products. This investment will be in the form of convertible perpetual preferred stock with a conversion price of \\$5.00 per share and a dividend that accrues, or is payable at Avon's option under certain circumstances in common shares or cash, at a rate of 5% per annum. The conversion price represents a 46% premium to the 30-day volume-weighted average price (VWAP). Assuming the conversion of the preferred stock to common stock, this equates to an ownership interest of approximately 16.6% as of December 16, 2015.
     
  • Avon North America will be separated from Avon Products into a privately-held company majority-owned and managed by Cerberus. Cerberus will purchase an 80.1% interest in Avon North America in exchange for a \\$170 million equity investment.  Avon North America will also assume approximately \\$230 million of long-term liabilities from Avon Products, which will be partially offset by a \\$100 million cash contribution from Avon.

The transaction is anticipated to be completed in the Spring of 2016.

AVON: WELL-POSITIONED TO DRIVE REVENUE INCREASES AND ENHANCED PROFITABILITY IN GROWING INTERNATIONAL MARKETS

The strategic partnership with Cerberus will provide substantial strategic, operational and financial benefits to Avon that will:

  • Position the international business for accelerated growth in beauty and direct selling and create greater earnings opportunities for Representatives
  • Improve cost structure and operational efficiencies to deliver long-term value to shareholders
  • Increase financial flexibility and improve the capital structure to support the international portfolio
  • Provide ongoing equity ownership in Avon North America so that Avon Products shareholders benefit from future value creation in that business

"After a thorough, thoughtful and deliberate process by both parties, we are creating a strategic partnership that will improve Avon's performance and drive shareholder value," said Sheri McCoy, Chief Executive Officer of Avon Products, Inc.  "We believe this partnership and structure will also accelerate profitable growth in the remaining Avon portfolio – which represented approximately 86% of consolidated revenues for the nine months ended September 30, 2015 – as we focus resources on our top markets, the majority of which are profitable and growing. The capital infusion from Cerberus, alongside the suspension of the dividend, and additional operating efficiencies provide us the needed financial flexibility to implement operational and capital plans that fully support the international business," continued McCoy. "We look forward to sharing the Avon growth plan at our investor day in January."

McCoy continued, "There is high potential for the Avon brand and business model in both our international business and Avon North America. However, we believe that the separation of Avon North America is the best way to ensure that both businesses have an unencumbered path to profitability and growth and this was a key principle as we considered alternatives. Importantly, Cerberus has both the conviction and resources to support our Representatives. We are confident that relief from the short-term pressures of a public company reporting cycle, the substantial investment that Cerberus is making to support and reinvigorate the business and the operational excellence and discipline that define Cerberus' reputation, will return Avon North America to health. With our continuing ownership position, we look forward to helping advance the Avon mission in North America, while allowing our shareholders to participate in the upside potential."

"We have long admired the Avon brand, business model and products and see significant potential for Avon both in North America and internationally," said Steven F. Mayer, Senior Managing Director and Co-Head of Global Private Equity of Cerberus. "We are strong believers in the direct selling model, the principle of empowering Representatives, and the growth that direct selling can generate when Representatives are appropriately supported and incentivized to build their businesses. By privatizing the North American business, we will have the time and ability to improve the company's competitiveness, enable each Representative to earn more, help her conduct business more efficiently, and increase her customers' satisfaction."