Brazil’s Natura to buy Avon Products for $2bn in stock

Bloomberg

Brazil’s Natura Cosmeticos SA agreed to buy rival Avon Products Inc in an all-stock deal valued at about $2 billion, positioning it as a growing force in the booming global cosmetics and skincare industry.
Controlling shareholders of Natura, which bought the Body Shop retail chain in 2017, will form a new publicly traded holding company that will offer 0.3 share for every share of London-based Avon, according to a statement. Holders of preferred Avon shares will get $530 million in cash assuming the deal closes in early 2020.
Including debt, the transaction is valued at $3.7 billion, the companies said.
Natura shareholders will own about 76 percent of the merged company, with Avon’s shareholders owning the remainder once the deal is closed. The new company’s shares will trade in Sao Paulo and New York.
Avon shares surged as much as 14 percent to $3.98 in New York trading, while Natura fell as much as 6.2 percent to 57.67 reais in Sao Paulo, the biggest decline on Brazil’s benchmark stock index.
The tie-up cements the largest direct-sellers in the global cosmetics business. Avon, founded in 1886 in the US, pioneered a then-innovative sales model by soliciting fans of the brand to become saleswomen themselves. The combined businesses will have more than 6 million direct sellers, 3,200 stores and operations in 100 countries, according to the companies.
Banco Bradesco SA, Citigroup Inc and Itau Unibanco SA are providing as much as $1.6 billion in financing for the cash consideration for Avon preferred stock holders and for payments that may be required for Avon’s debt. While Natura expects Avon bondholders to grant consent to the deal, the company has secured extra financing in case it needs to buy back some of the debt, Chief Financial Officer Jose Filippo said in a conference call.
Avon — a multilevel marketing company — has long used door-to-door sellers, colloquially dubbed “Avon ladies,’’ although much of the industry now relies more on social media. The direct-selling beauty sales model has since been replicated by rivals from Mary Kay in the 1960s to newer upstarts like Younique and Rodan + Fields — and even Natura.
After a tough period of sinking demand, Avon largely gave up on the US, selling its operations in the country to private equity firm Cerberus Capital Management LP in a deal announced in 2015. Last month, LG Household & Health Care agreed to buy Cerberus’s majority interest as well as Avon’s minority stake in the US business.
Avon moved its headquarters to London after the 2015 agreement, saying the shift would help it focus on international markets. But it’s lost momentum: In its most recent earnings statement, Avon said its sellers base dropped 9 percent year over year, mainly driven by declines in Brazil and Russia. Earlier this year, it announced a workforce reduction of 10 percent to trim costs. The company currently operates in 57 countries.
That’s in part because Natura, founded in 1969, has become one of its fiercest competitors, with the ranks of its direct sellers reaching 1 million in Brazil alone. Natura said it plans to turn Avon around by speeding up the company’s existing initiatives on e-commerce and development of new products.