TPG, which is a global private investment firm that acquires businesses across a broad range of industries throughout the world, will pay JPY¥7.3bn, or US$90m, to buy up Avon’s stake in the business as well as for pre-paid royalties for intellectual property.
To date the business in Japan has generated more than half of its turnover from direct mail services and a large number of the product range is completely unique to the business.
This contrasts with Avon's business model, which has been built around a highly developed direct sales network across global markets, selling a portfolio of products that varies little from country to country.
Japanese business odd one out
This means the Japanese business has been looking increasingly out of place in the company’s international business portfolio in recent years, a factor that has been further exacerbated by the fact that difficulties in the Japanese economy which has made growth potential more of a challenge.
"While Japan is an important consumer market, our analysis indicates that we would need to commit significant additional investment in order to generate profitable growth in the near to intermediate term," Avon CEO Andrea Jung said in a statement.
In addition to the differences in the business operation, the Japanese business stake is the only one Avon currently owns that is publicly traded, appearing on the JASDAQ market of the Osaka Securities Exchange.
Deal should be closed by end of 2010
The sale of the business is subject to closing conditions and regulatory requirement, but once these requirements are firmed up, the deal is expected to go through by the end of the fourth quarter 2010.
Avon also said it expected that both current Avon sales representatives and the existing management team would continue to provide support during the transaction period, while TPG will trade under the Avon name ‘for a period of time’.
Likwise, Avon has also granted the company the rights to its formulas and products in Japan, while the company can also continue to trade these products outside of Japan, subject to some specific restrictions.
Avon cost cutting and focus pays dividends
After years of cost cutting and significant investment in emerging markets, Avon financial results have been showing dividends in recent quarters.
Most recent third quarter group sales rose 4 percent to $2.7bn, despite being negatively impacted by 2 percent due to currency exchange rates, while net income rose by 6.6 percent, despite being hit by big losses from its operation in Venezuela.
Looking ahead to the full year, the company says it is expecting 2010 sales figures to grow at mid-single digit figures.