Struggling Avon rejects $10B buyout offer

Avon said Coty’s $10 billion buyout bid undervalues the company and quickly rejected it.

NEW YORK — Coty came calling, but Avon slammed the door.?Struggling direct cosmetics seller Avon Products Inc. on Monday rejected a $10 billion buyout offer from Coty Inc., a smaller beauty products maker looking to capitalize on Avon’s business woes.

It was the largest takeover offer by far from New York-based Coty Inc., which snapped up smaller beauty brands like OPI nail polish and Philosophy Inc. skin care, in the last two years.

The bid also underscores the weakness at Avon, which has been beset by a foreign bribery investigation, weakening sales and a leadership vacuum.?Coty is controlled by German holding company Joh. A. Benckiser GmbH, which also operates consumer products company Reckitt Benckiser Group plc.

Coty has about $4 billion in annual revenue. The company has said it wants in increase that to $7 billion by 2015.

Adding Avon’s $11 billion a year in revenue would far surpass that goal. The deal also would strengthen Coty’s hand in emerging markets.?Coty is mainly known in the U.S. for its fragrances by celebrities like Beyonce, Celine Dion and Lady Gaga. It also makes Calvin Klein brand fragrances.

Coty has kept a tight lid on the values of previous acquisitions. But it went public with the Avon bid Monday to put pressure on Avon to negotiate.

The offer, which isn’t binding, is a 20 percent premium to Avon’s Friday closing price of $19.36. Coty also said it won’t pursue a hostile takeover.

Avon said the bid undervalues the company and quickly rejected it.

Avon was founded in 1886 and became a fixture in U.S. culture for its “Avon ladies” selling products door to door and to friends and family. But North American sales have been in a long decline. Now, about 80 percent of its revenue comes from overseas.

Avon’s profit has shrunk over the last three years. It has frequently missed analysts’ earnings expectations and posted disappointing sales in some of its largest markets, including Brazil and Russia.

The company also is facing a bribery probe that started in China and widened to other countries. The Securities and Exchange Commission is investigating its contact with financial analysts in 2010 and 2011 related to the investigation.

Investors and analysts have blamed CEO Andrea Jung for the problems. In December, Avon began seeking a replacement for Jung, who plans to remain chairman.

Avon’s business problems and stock decline made it a tempting target, said Morningstar analyst R.J. Hottovy. Still, he thinks the offer was a bit low.

He values Avon’s stock at about $25 and said a deal looks unlikely.

“It would be very difficult for a direct-sales model to be integrated into a traditional consumer product company,” he said.