One of the NYSE’s biggest winners Wednesday as Avon Products (NYSE: AVP). The direct-selling giant in the beauty and personal care category surged today, jumping over 15 percent on news that it was being acquired by a Brazilian firm in an all-stock transaction valued at over $3.7 billion.
The Brazilian cosmetics and skin care company Natura & Co said that it is planning to buy the iconic U.S. cosmetics company in a deal that would create the fourth largest pure-beauty-based corporate entity in the world.
Just like Avon, Natura also operates on a direct-sales model, using peer-to-peer consultants and salespeople to grow their footprint. The combined corporate entity is expected to have annual gross revenue of over $10 billion and would oust Amway as the leading direct sales company in the world on revenue figures alone.
“By adding Avon to a portfolio that already includes Natura, The Body Shop and Aesop, Natura & Co will enhance its ability to better serve its different consumer profiles and distribution channels and expand into new geographies,” Natura said in a statement. “Together with Natura, we will have broader access to innovation and a portfolio of products, a stronger e-commerce and digital platform, and improved data and tools for Representatives to drive growth and enhance value for shareholders. Further, with the support of Natura, we will continue to invest in cutting-edge technology to enhance our digital capabilities and productivity for our Representatives,” added Avon’s CEO Jan Zijderveld.
Avon already has a presence in Brazil with over one million consultants registered in the country. However, many of them sell products for both companies, and Natura has emerged as a higher-end brand in the area, making it harder for Avon to compete.
Natura previously pursued financing to buy well-known wellness company the Body Shop, so buying out Avon in an all-stock transaction would let the company avoid straddling itself with even more debt. Even still, the combined entity would end up with debt equivalent to 3.7 times in annuals EBITDA, which is pretty high.
Shares of Avon surged over 16.5 percent on the news of the buyout. Over the past year, shares of the direct selling giant have fluctuated between the $2 to $3 price point, a relatively cheaply priced stock for a company with a market cap of $1.5 billion.
When looking at the stock on a five-year chart, however, it’s clear that Avon has fallen from grace as shares have fallen steadily from their height of $15 in 2014 down to their current level, an almost 80 percent decline.
Avon Company Profile
Avon Products Inc is a multilevel marketing firm which manufactures and sells beauty and related products. Avon’s product mix consists of beauty (cosmetics, fragrances, and skin care), fashion (accessories and apparel), and home (home products and gifts). Generating, a majority of its revenue from Beauty.
The company’s geographic operating segments includes Europe, Middle East and Africa, South Latin America, North Latin America and the Asia Pacific. It generates a majority of its revenue from South Latin America followed by Europe, Middle East, and Africa. – Warrior Trading News