* Coty says Avon took too long
* Bid had backing from Warren Buffett's Berkshire Hathaway
* Avon shares had been hammered prior to Coty's bid
By Phil Wahba
May 15 Fragrance company Coty Inc withdrew its
$10.7 billion takeover bid for Avon Products Inc on
Monday, saying the world's largest cosmetics direct seller had
missed a deadline to start discussing a deal that Coty first
proposed in March.
The move leaves Avon shareholders relying on new Chief
Executive Sheri McCoy to come up with a plan to turn around a
company that has been suffering from plummeting profits on
falling sales at home and in some international markets, as well
as a stock price that had been hammered prior to Coty's bid.
Coty last week raised its unsolicited bid, which had the
financial backing of Warren Buffett's Berkshire Hathaway
and others, to $24.75 per share from an
earlier $23.25 per share offer, and gave Avon a Monday deadline
Avon, which had rejected outright all of Coty's earlier bids
without entering into discussions, said on Sunday in a
two-sentence statement that it would look at Coty's latest offer
but respond within a week.
"Avon Products responded promptly to Coty's May 9 letter by
disclosing it on May 10 and indicating that its board would
consider the contents of the letter," Avon said in a statement
early on Tuesday.
However, on May 14, five days after sending its letter, Coty
withdrew its proposal, Avon said.
Coty, known for fragrances for celebrities like Madonna and
Beyoncé, said that no one on Avon's board or senior management,
including McCoy, returned its request for an explanation of why
Avon needed more time to consider the bid.
"Your total lack of engagement with us leads us to believe
that you remain reluctant to explore a friendly, negotiated
combination on a reasonable timetable," Coty Chairman Bart Becht
said in a letter to Avon dated Monday and made public. "Two
months is enough."
Avon did not respond to a request from Reuters for comment.
Coty's reaction - take our offer by the deadline or we walk
away - is consistent with how Buffett has approached dealmaking
in the past. He has always been clear that Berkshire does not
get into bidding wars; it makes what it considers a fair offer
and that bid is either taken or not.
That was most recently seen last year with an offer by
Berkshire's National Indemnity insurance unit for reinsurer
Transatlantic. Amid a bidding war by other parties, Berkshire
came in with a firm cash offer. It set a deadline, and when that
deadline passed Berkshire simply withdrew its bid and went on
A number of Avon shareholders had told Reuters in recent
weeks that Coty's offers were too low but that they wanted Avon
to at least meet with Coty.
Coty, which made its desire to buy Avon known to the public
for the first time in April, had said from the start it had no
intention of making a hostile bid for Avon, which has close to
three times as much revenue as Coty.
Avon had rejected Coty's offers, arguing that they were too
low and that the company's value could rise more from a
turnaround led by a new CEO.
Avon shares had fallen 38.8 percent between the time they
hit a 52-week high on May 16, 2011 and March 30, the last
session before Coty went public with its overtures.
DECLINING SALES, FALLING PROFITS
Avon, is facing declining sales and a loss of sales
representatives. Earlier this month, Avon reported weak
first-quarter results, including a sharp drop in profits.
Avon has been bedeviled by heavy competition from drugstores
in the United States, aggressive pricing by rivals in Eastern
Europe and inadequate ordering systems that have frustrated
representatives in Brazil, its biggest market.
The company has poured tens of millions into an internal
probe into whether it broke the Foreign Corrupt Practices Act to
build its business overseas. The U.S. government announced its
own investigation last year.
Coty had said that before it could raise the offer any
higher, it needed access to Avon's books to understand the
financial implications of the U.S. probe as well as to get a
sense of potential savings from combining the businesses.
When McCoy spoke to shareholders at Avon's annual meeting on
May 3, she said her first priority was to stabilize the
McCoy, a former Johnson & Johnson executive, took
the reins as CEO last month. She will conduct a thorough
business review this year.
Fragrances accounted for 57 percent of Coty's $4.1 billion
in sales in its year ended June 2011. The bulk of its sales come
from Europe and North America. A tie-up would have given it
access to developing markets such as Brazil, Russia and Mexico,
and deepened its roster of products.
The companies first met to informally discuss a deal in
February, initially exploring having Avon buy Coty. Becht last
month said that when no offer came from Avon, Coty made a verbal
offer, followed by three letters in March. Its original offer
was for $22.25 per share.
Coty had lined up equity financing from several parties,
including Coty's main shareholder, Joh. A. Benckiser, BDT
Capital Partners and some of its limited partners, and Berkshire
Hathaway. Coty had said J.P. Morgan Securities would provide
Berkshire Hathaway would provide $2.5 billion of the
financing, a person familiar with the matter told Reuters last
Shares of Avon closed up 77 cents on Monday at $20.96 on the
New York Stock Exchange. Coty revealed its decision after U.S.