Avon Products, Inc. has announced that it has formed a strategic partnership with Cerberus Capital Management, a New York-based private investment firm. The transaction is anticipated to be completed in the Spring of 2016. The North American business will be privatized.

Sheri McCoy, Chief Executive Officer of Avon Products, Inc., said:

“After a thorough, thoughtful and deliberate process by both parties, we are creating a strategic partnership that will improve Avon’s performance and drive shareholder value. We believe this partnership and structure will also accelerate profitable growth in the remaining Avon portfolio – which represented approximately 86% of consolidated revenues for the nine months ended September 30, 2015 – as we focus resources on our top markets, the majority of which are profitable and growing.”

McCoy continued, “The capital infusion from Cerberus, alongside the suspension of the dividend, and additional operating efficiencies provide us the needed financial flexibility to implement operational and capital plans that fully support the international business.”

Cerberus specializes in improving operating performance and building long-term value of the businesses in which it invests.

The agreement aims to drive enhanced focus on Avon’s international markets, revitalize Avon’s North American business, and deliver long-term value to Avon shareholders. The partnership has been approved by the Avon Board of Directors.

Steven F. Mayer, Senior Managing Director and Co-Head of Global Private Equity of Cerberus, said, “We have long admired the Avon brand, business model and products and see significant potential for Avon both in North America and internationally. We are strong believers in the direct selling model, the principle of empowering Representatives, and the growth that direct selling can generate when Representatives are appropriately supported and incentivized to build their businesses. 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.”

The Details

The agreement includes a $605 million equity investment by affiliates of Cerberus. There are two components:

• Cerberus will make a $435 million investment in Avon Products.
• Avon North America will be separated from Avon Products into a privately-held company majority-owned and managed by Cerberus.

Steven F. Mayer, Senior Managing Director and Co-Head of Global Private Equity of Cerberus, said, “We have long admired the Avon brand, business model and products and see significant potential for Avon both in North America and internationally. We are strong believers in the direct selling model, the principle of empowering Representatives, and the growth that direct selling can generate when Representatives are appropriately supported and incentivized to build their businesses. 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.”

The Goals

According to Cerberus, it will provide substantial strategic, operational and financial benefits to Avon that will:

•     Position the international business for accelerated growth in beauty and direct selling and create greater earnings opportunities for Representatives
•     Improve cost structure and operational efficiencies to deliver long-term value to shareholders
•     Increase financial flexibility and improve the capital structure to support the international portfolio
•     Provide ongoing equity ownership in Avon North America so that Avon Products shareholders benefit from future value creation in that business

McCoy added, “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. With our continuing ownership position, we look forward to helping advance the Avon mission in North America, while allowing our shareholders to participate in the upside potential.”