Avon To Barington: Take Your Plan and…

After months, no years, of feeling under appreciated, Avon Products is feeling the love—but it's not reciprocating just yet.


The direct seller of beauty products has not one, but two suitors for all or part of its business. Early yesterday, came word that Avon was mulling the sale of its North American business to Cerberus, the investment group. Later, private equity investors led by Barington Capital Group, which owns 3% of Avon, urged Avon's board to reject the Cerberus offer, saying the cosmetics maker is “significantly undervalued.” Instead, Barington called for Avon to restructure its business—something Avon has been doing, and doing, and doing for the past 10 years.

According to Barington, its plan would:

• Eliminate wasteful and unproductive expenses, resulting in annual savings of $500 to $700 million;

• Achieve $0.90 of earnings per share based solely on the initial impact of cost cutting and stabilizing revenues;

• Restore Avon’s global market position through reinvestment of a portion of these savings into operational improvements; 

• Grow revenue and market share;

• Enable Avon to maintain and grow its current dividend; and

• set Avon on a path to recovering its position as a leading global beauty brand.

To read the Barington letter in its entirety, visit: www.barington.com/avon.html


In response to Barington's “guidance,” Avon issued the following statement:


“We are aware that Barington has made a public announcement expressing its views on our business. Avon welcomes open communication with and feedback from our shareholders.

“Our Board of Directors and management team regularly review a wide range of options regarding our business and operations and take into account the views of Avon shareholders. We remain focused on taking strategic actions to drive sustainable, profitable growth, address changing and challenging industry dynamics, create opportunity for our Representatives and enhance value for all Avon shareholders. This includes the actions we have taken and continue to take to drive improved performance in the North American business.
 

“We look forward to continuing our dialogue with our shareholders as we execute our plans.”


All the chatter has provided a lift to Avon's share price, but it's unclear if and when a deal will be struck.