Avon names J&J's McCoy as CEO; shares fall
(Reuters) - Avon Products Inc (AVP.N) named Johnson & Johnson (JNJ.N) senior executive Sherilyn McCoy as its new CEO, presenting Coty Inc with another hurdle in its $10 billion bid for the world's largest direct seller of cosmetics.
The appointment of McCoy, who lost the competition for J&J's top job earlier this year, ended a four-month search for a fresh face to replace charismatic chairman and CEO Andrea Jung as Avon attempts to turn itself around. At J&J, McCoy was responsible for brands including Neutrogena and Lubriderm.
She is credited with reshaping a pharmaceuticals business that was facing patent expirations on major drugs.
In 2011, she also took over a consumer business that was bedeviled by manufacturing issues that led to recalls of products ranging from Tylenol pain reliever to Aveeno baby calming lotion.
In February, the problems continued, and Johnson & Johnson recalled its entire U.S. supply of infant Tylenol after parents complained about problems with a new dosing system.
McCoy had "inherited a bit of a mess, but unfortunately for her I think that mess never got better," Cowen & Co analyst Ian Sanderson said.
Last week, Coty made an unsolicited $23.25 per-share offer for Avon, which on top of declining sales at home and in key markets including Brazil and Russia, is facing a U.S. probe into overseas bribery allegations. Avon rejected the bid, arguing that the company's value could rise more under a new CEO than as part of Coty.
Avon shares closed down 3.1 percent at $22.69 on Monday, falling below Coty's offer.
In recent years, Avon's shareholders have been frustrated by the company's problems under Jung, including two failed business restructurings. In the past year and a half leading up to Coty's public declaration of its offer, Avon's shares had fallen nearly 50 percent. Avon shelved a plan last year for another top-to-bottom company review until a new CEO was appointed.
Many shareholders said they were willing to give McCoy some time to develop and implement a strategy for Avon.
"Until we have a better sense of her, we'll give her time to develop a strategy," said Shawn Gault, a portfolio manager at Kempner Capital Management Inc. "I'm not opposed to the Coty deal, just not at this price."
McCoy, who like Jung graduated from Princeton University, is due to take the chief executive's reins on April 23. She will also serve on Avon's board of directors.
Coty Chairman Bart Becht said in an interview last Monday after Coty disclosed its bid for Avon that the bid process would be complicated by Avon's naming of a new CEO.
Coty could not immediately be reached for a comment on McCoy's appointment. Coty was expected to begin wooing major shareholders this week to sell them on the deal.
Bernstein analyst Ali Dibadj said that investors' lack of familiarity with McCoy, Jung's continued involvement as chairman, and the timing of the announcement so quickly after Coty's bid would likely disappoint investors.
Avon, famous for its "Ding Dong, Avon Calling" advertisements in the 1950s and 1960s, said in December it would look outside the company for a replacement for Jung, 53. She will become executive chairman for two years.
Avon has said that it would keep Jung on for that time period because she plays a key role in motivating the company's 6 million sales representatives.
KUDOS FOR RESHAPING DRUGS BUSINESS
McCoy, 53, was with Johnson & Johnson for three decades, and most recently served as its vice chairman of pharmaceutical, consumer, corporate office of science and technology, and information technology divisions.
Fred Hassan, lead director of Avon's board, said in a statement that McCoy has "a unique combination of strategic and finely honed operational skills, a significant turnaround track record, global experience and people leadership."
Analysts gave her high marks for reshaping the company's pharmaceutical business as it faced patent expirations on some major drugs including the antipsychotic Risperdal and the epilepsy treatment Topamax.
But in January 2011, McCoy also took control of the consumer products business, which includes the Tylenol and Neutrogena brands.
The over-the-counter drug business was already facing manufacturing issues that had caused a number of recalls. Quality control problems at J&J's consumer unit were deemed so pervasive that U.S. health regulators took over supervision of three manufacturing plants a year ago.
McCoy was promoted to the post of vice chairman at J&J in December 2010, setting her up as a possible successor to CEO William Weldon. But in February, J&J said that Alex Gorsky, who was named vice chairman at the same time as McCoy, would be the company's CEO, effective April 26.
McCoy joined J&J in 1982 as a scientist in the company's personal products unit. She had been in charge of J&J's pharmaceutical division since 2009 and has held senior management roles in the company's medical device business.
"You have got to give her some credit for reshaping the pharmaceutical division into a very well-run and what looks like a very well-positioned business at J&J," said Morningstar analyst Damien Conover.
Cowen analyst Sanderson said McCoy was "very impressive" when she ran a meeting for analysts and investors to review J&J's pharmaceutical business last May.
"She has really steered that business through some fairly major patent expirations over the past couple of years and made the pipeline relevant again," Sanderson said, pointing to new medicines for prostate cancer, stroke prevention and psoriasis.
(Reporting By Dhanya Skariachan, Phil Wahba and Lewis Krauskopf in New York; Editing by Gerald E. McCormick, Maureen Bavdek and Matthew Lewis)