Avon Products (AVP) is a beauty products producer and marketer. It reported revenue of $11.3 billion in 2011. It also recorded operating income of $855 million and a net income of $518 million. As of the end of 2011, it manages total assets of $7.735 billion.
Coty is a French beauty products manufacturer and is one of the oldest of the cosmetics companies. It has recently announced it intends to go public after its failed acquisition bid of Avon Products.
The Two Offers
Before Coty's offer, Avon Products's shares were trading at $19.36 per share. It was already doing very well for the year as the share price was $17.47 at the start of January. On February 22, it also paid out a dividend of $0.23.
Coty initially offered to buy Avon Products for $23.25 per share. This was a premium of 27% over the three-month weighted average price and a 20% premium on the March 30, closing price. It announced this to the public and the shareholders on April 2, after unsuccessful attempts to engage Avon about the offer. Avon subsequently rejected this offer, claiming it was acting in the best interests of its shareholders.
On May 10, Coty made a second offer of $24.75 per share. It set out clear guidelines that the board of directors of Avon Products must enter into negotiations by May 14. Coty withdrew its bid after a total lack of interest and no contact from Avon.
After the two offers were rejected, several lawsuits have been made by shareholders, law firms, and other interested parties who claim the company was not acting in the shareholders' best interests. It would seem that Avon Products has breached its fiduciary duties to its shareholders as it would have certainly been maximizing the value of the company by accepting either offer, which were both substantial premiums on Avon's price per share.
Avon Products's price per share has collapsed now to just $16.52. It was offered two buyout bids, which valued it at over $10 billion when it is currently valued at just over $7 billion. This is made even worse by the fact that Avon was probably overvalued it the first place at its price before the offer. Its P/E ratio was almost at 20 as well as having a substantial total debt to equity of 210.67%. Consequently, Avon Products's board of directors made a mind-numbingly irrational decision and shareholders have a perfect right to be filing lawsuits as they contend Avon has breached its fiduciary duties.
My data is from google.com/finance and various related sites.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.