Avon Products, Inc. (NYSE: AVP)
On Thursday, Avon Products, the 130 year-old direct seller of beauty supplies, received notice from an activist investor group, denouncing Avon’s plans to sell its North American business unit and demanding a change in top management.
Avon is in the late stages of negotiating a deal with Cerberus Capital Management. Specific details of the deal are still unknown, but insiders indicate that Cerberus would become the largest shareholder and take seats on the Board of Avon. Meanwhile, the activist group led by Barington Capital Group has built a stake of about 3% in Avon and launched a public campaign to turn the company around. The activist group would oppose the Cerberus deal at current prices. But, they stated that a deal could be good for shareholders if done at fair prices and include management changes, specifically a replacement for CEO Sherilyn McCoy, as well as new board members. MarketWatch
The activist letter from Barington’s James A. Mitarotonda spelled out a detailed plan for turning Avon around and summarized the benefits: Yahoo Finance
“We are convinced that there is a significant opportunity at hand for Avon to unlock its intrinsic value for the benefit of all its shareholders. In order to realize Avon’s value potential and restore its market leadership and financial performance, we believe the Company must promptly implement a restructuring plan. We have developed such a plan for Avon, which, if implemented, we believe 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 the Company to maintain and grow its current dividend; and
- set the Company on a path to recovering its position as a leading global beauty brand.”
AVP Technical Analysis
Avon rejected a $23 per share buyout offer in 2012 and the stock has been in a downtrend ever sinse. The stock started 2015 at $9.39 and has continued to put in all time lows each quarter before finding a bottom at $2.41 on November 13. AVP finished most trading days this year below both the 9-day and 20-day exponential moving averages. For a long I want to see the stock stay above the 9ema and 20ema on the daily chart as well as resistance at $4.40ish. If the activist group continues to build its position or more institutions get involved, the stock has room to the 200-day moving average near $5.90. Of course any further activist news could easily move the stock much higher. Support levels at $4.00, $3.55 and $3.10 could be traded for bounces or shorts depending on the price action.
Avon Products, Inc. Company Profile
Avon Products, Inc. is a manufacturer and marketer of beauty and related products. The Company’s offers its products under two product categories: Beauty and Fashion & Home. Beauty consists of skincare (which includes personal care), fragrance and color (cosmetics). Fashion & Home consists of fashion jewelry, watches, apparel, footwear, accessories, gift and decorative products, housewares, entertainment and leisure products, children’s products and nutritional products. The Company’s segments are -based on geographic operations and include commercial business units in Latin America; Europe, Middle East & Africa; North America, and Asia Pacific. The Company’s business is conducted primarily in one channel, direct selling. The Company has sales operations in 60 countries and territories, including the United States, and distributed its products in 41 other countries and territories. Google Finance