The deal, which is expected to be final in spring of next year, will see Avon Products and Avon North America separate. Cerberus will buy 80.1% interest in the North American business in return for a $170m equity investment, according to the companies’ joint statement to the press.
“By privatizing the North American business, we will have the time and ability to improve the company's competitiveness, enable each Representative to earn more, help her conduct business more efficiently, and increase her customers' satisfaction," says Steven F. Mayer, senior managing director and co-head of Global Private Equity at Cerberus, in that statement.
Separate but profitable
Steve Bosson will head the transition team for Avon North America, which comprises business operations in Canada, the United States and Puerto Rico. The new company will use the Avon brand, product portfolio, and intellectual property thorough a licencing agreement.
The capital management firm will name a new CEO; Avon North America’s current president will leave the company as of 4 January 2016. In the company’s new incarnation, two board seats will be filled by Avon executives Sheri McCoy and Susan Kropf.
Cerberus intends to update the North American product portfolio and invest in Representative recruitment. Beyond that, there are already plans to better Representative incentives as well as for “simplifying go-to-market, order fulfillment and payment processes, and enhancing the customer experience,” in the region, according to the statement.
McCoy is confident
"There is high potential for the Avon brand and business model in both our international business and Avon North America,” says Sheri McCoy, CEO of Avon Products, in the companies’ statement to the press.
“Importantly,” she continues, “Cerberus has both the conviction and resources to support our Representatives. 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.”
More dollars and details
Avon’s board of directors have approved the deal, and the company’s plan for growth will be announced in January. As of now, Cerberus will invest $435m and holds an approximate 16.6% ownership interest in Avon Products.
The investment takes “the form of convertible perpetual preferred stock with a conversion price of $5.00 per share and a dividend that accrues, or is payable at Avon's option under certain circumstances in common shares or cash, at a rate of 5% per annum,” according to the press statement.
Avon’s financial challenges have been no secret of late. In March, the company fell off the S&P 500 stock market index. And, speculation of outside investment has been flying around for years.
Nonetheless, Avon has been moving ahead with its business in the States and globally, advancing its palm oil sourcing practices, upgrading its online presence for Representatives and consumers, and innovating competitively in the anti-aging category.
The partnership with Cerberus Capital Management bodes well for Avon’s future in and beyond North America.