Coty Inc. raised its bid for Avon Products Inc., with the backing of Warren Buffett's Berkshire Hathaway, and the beauty products company gave Avon until the close of business May 14 to start talking or the offer would be withdrawn.
Coty, maker of Stetson aftershave and Beyoncé fragrances, raised its offer to $24.75 (U.S.) per share, or $10.65-billion, according to a letter Avon made public on Thursday. In April, it had offered to buy Avon for $23.25 per share.
Avon's board did not reject the offer outright and said it would consider Coty's latest bid "in due course."
Avon has rejected all prior offers from Coty, saying the company's value could rise under a new CEO rather than as part of Coty. Coty's initial bid was $22.25 per share.
In the letter, dated May 9, Coty Chairman Bart Becht said equity financing sources include Coty's main shareholder, Joh. A. Benckiser, BDT Capital Partners and some of its limited partners, and Berkshire Hathaway Inc. Coty said JPMorgan Securities would provide its debt financing.
"I don't think they will (take up the offer). They know that the current bid is too cheap," said Michael Bigger, founder of trading firm Bigger Capital, which holds Avon shares. "Cosmetics is a great business. It deserves a premium. If I were them I would ask for $28 or more."
Avon's shares slid 40 cents, or 1.85 percent, to $21.20 in early trading, well below the latest offer price.
"Coty can't wait around for too long. They have to get on with their business," said Sanford C. Bernstein analyst Ali Dibadj. "The risk is that the deadline is very short."
While Coty has previously said it had strong sources for its financing, Thursday was the first time that Berkshire was mentioned by name. BDT Capital Partners, founded by former Goldman Sachs Group Inc partner and longtime Warren Buffett confidant Byron Trott, and privately held Joh. A. Benckiser have been named since the beginning.
It appears that other financing, from Coty's main shareholder, was also recently lined up. On Wednesday, the Reimann family's JAB Holdings BV, which is also Reckitt Benckiser's biggest shareholder, said it intended to sell about 4.9 per cent of its stake in British consumer goods group Reckitt to reduce its total holding to 10.4 per cent. One reason given was to invest in new opportunities.
Avon, the world's largest direct seller of cosmetics, last month named former Johnson & Johnson executive Sheri McCoy as its new CEO. McCoy told investors in her first public comments last week that her first priority as CEO was to stabilize Avon's business.
Avon, in addition to declining sales at home and a loss of sales representatives, faces a U.S. probe into overseas bribery allegations. Coty said it needs to better understand Avon's ongoing Foreign Corrupt Practices Act investigation and litigation, and what it would cost to address operational and financial problems and those liabilities.
Last week, Avon reported weak first-quarter results, including a sharp drop in profits. Avon has said it will conduct a thorough business review this year, but Coty said in its letter it could not give Avon all that time.
"We continue to believe that our proposal would provide compelling value to Avon's shareholders relative to a difficult and uncertain multi-year turnaround on a stand-alone basis," Mr. Becht said in the letter to Avon's board.