Cerberus Nears Deal Of $170 Million For Majority Stake In Avon

After years of declining sales, Avon Products Inc. (AVP—NYSE) on Thursday said it will sell its North American business in a $605 million deal with private-equity firm Cerberus Capital Management LP.

The beauty company announced it will sell off an 80.1 percent stake in Avon North America for $170 million, with Avon holding the remaining 19.9 percent in the resulting privately held company. Cerberus also will make a $435 million preferred-stock investment for a 16.6 percent stake in Avon Products.

The deal aims to spur the North America business and enhance focus on international markets, the companies said. In the first three quarters of 2015, Avon’s international business accounted for 86 percent of consolidated revenue.

Avon also announced plans to suspend its dividend, opting to use it and proceeds from the sale to pay down debt and reinvest in the business.

According to the agreement, Cerberus will appoint a CEO to lead Avon North America when the current President, Pablo Muñoz, steps down in January. The company will be governed by a board of managers, with seven seats held by Cerberus and two filled by Avon Products CEO Sheri McCoy and former President and COO Susan Kropf.

“Importantly, Cerberus has both the conviction and resources to support our Representatives,” McCoy said in a statement. “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.”

The new partnership extends to the board of Avon Products, which will gain three Cerberus directors and two more jointly appointed by the companies. The departure of six current directors will reduce the final headcount to 11. Cerberus appointee Chan Galbato has been tapped to serve as non-Executive Chairman, and longtime director W. Don Cornwell will be Lead Independent Director.

On news of the long-rumored deal, shares of Avon climbed 24 percent in premarket trading to $4.94 before leveling out to $4.04 at close of day.

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