(Reuters) – Coty Inc disclosed yesterday that it had offered $10 billion for Avon Products Inc but the larger company, which is grappling with sliding sales and a bribery probe, rejected the bid as too low and “opportunistic”.
Combining Coty, maker of Stetson aftershave and Beyonce fragrances, with Avon, the world’s largest direct seller of cosmetics, would give Coty less reliance on fragrances and a bigger share of growing overseas markets.
Investors sent Avon’s stock soaring as high as $23.38 yesterday after news of Coty’s offer. The shares closed up 17.3 percent at $22.70.
Coty Chairman Bart Becht said in an interview that Coty and Avon started talking a few months ago about a merger that would have had Avon buying Coty in exchange for shares.
He said when no offer came from Avon, Coty made a verbal offer, followed by three letters last month to Avon Chief Executive Andrea Jung.
“Their board fully acknowledges the financial and strategic rationale, so it is something that should happen,” Becht said.
Avon declined to address Becht’s comments.
“We would think they would be very open to a takeover,” Barclays analyst Lauren Lieberman wrote in a note to clients, referring to Avon’s shareholders.
Caris & Co raised its price target to $28, saying the bid reaffirmed the value of Avon’s international presence.
Avon, known for its iconic “Ding Dong, Avon Calling” commercials of the 1950s and 1960s, said in its most recent annual report, released in February, that developing markets accounted for more than two-thirds of its sales.
Coty said in a statement yesterday that it made its offer public after unsuccessfully trying to engage Avon in merger talks.
It said it had no intention of making a hostile bid.
“We hope by having made public our offer … that their shareholders will talk to their board and that the board will start engaging with us,” Becht said.
The company said it was willing raise its bid, provided it was given access to Avon’s financial records to decide whether a higher offer was warranted.
Such due diligence would take about a month or so, Becht said.
