Coty Makes $10 Billion Bid for Avon

Ding-dong. Coty’s calling—on Avon. Coty has made an unsolicitated $10 billion bid for beleaguered Avon.

“Following extensive but unsuccessful attempts to engage Avon in discussions regarding its proposal, Coty has decided to make its proposal public in order to inform Avon’s shareholders of the significant value in a transaction,” Coty said.

The purchase price values Avon at a premium of $3.89, or 20%, over Avon’s closing price of $19.36 a share on Friday. Avon shares jumped 27% to $24.50 in premarket trades.

However, Avon’s board concluded that Coty’s indication of interest is opportunistic and not in the best interest of Avon’s shareholders.

The Avon board believes Coty’s indication of interest, which offers Avon shareholders only a 20% premium over the Company’s closing share price on March 30, 2012, does not reflect the fundamental value of Avon and its global beauty care franchise.Indeed, the indication of interest represents a multiple of only 1.1 times Avon’s net revenue for the fiscal year ended December 31, 2011 and 8.7 times 2011 EBITDA.This is significantly below multiples that the Avon board believes an iconic consumer company is worth in a change of control transaction.

Moreover, Avon said it is committed to its publicly announced process of hiring a new CEO and executing against what the Company believes are its strong long-term prospects.With a new CEO, Avon’s Board firmly believes that there is greater opportunity to improve shareholder value in excess of Coty’s conditional indication of interest.

According to Avon, Coty’s indication of interest is non-binding and, by its own terms, subject to numerous conditions such as financing, due diligence and the negotiation of a definitive agreement.Coty’s letter to Avon dated March 30 alludes to the possibility that, following diligence, Coty reserves the right to raise or lower its price to acquire Avon.In the final analysis, Coty is attempting to obtain a “free look” at Avon in the absence of any commitment whatsoever to close a transaction at any price.