Dive Brief:
-
New York City-based hedge fund Cerberus Capital Management will pay $435 million for a 16.6% stake in struggling cosmetics retailer Avon Products Inc. The hedge fund will also buy 80.1% of the company's North American business, taking it private and separating it from its other business.
-
The $605 million dollar deal could help salvage the company’s fortunes, though it represents a $2.6 billion valuation compared to a $10.7 billion takeover offer bid from beauty company Coty Inc. that Avon rejected in 2012.
-
CEO Sheri McCoy, who has seen the retailer’s worsen since 2012 when she took the job, will apparently remain amid a shakeup of the board; chairman Douglas Conant and five other directors will be stepping down.
Dive Insight:
Avon began in the 19th century as a door-to-door cosmetics company that dominated the beauty industry for decades, with "Avon ladies" selling to their friends and neighbors. While its catalog-based approach could have poised the retailer to fairly smoothly transition to e-commerce, that hasn't happened. Instead, upstarts like online beauty subscription retailer Birchbox and specialty retailers Sephora and Ulta, plus department stores and drugstores that have refined their approaches in the space, have dominated.
Indeed, the beauty space is thriving and competition fierce, with forecasts for growth of 5.3% annually through 2019, according to Euromonitor International, for example. But Avon is largely missing out on the boom and is even seeing sales fall in Latin America, previously an area of strength.
CEO Sheri McCoy, one of retail's highest paid executives, has failed to turn around the company, and its fortunes have faltered that much more since her arrival in 2012. She will stay on, though, despite the shake-up of the board once the deal closes, to the dismay of activist investor Barrington Group, which owns more than 3% of the company and which has pushed for restructuring in recent days.
"While we are pleased that six existing board members have agreed to step down, we are astonished that Sheri McCoy remains as CEO," Barington CEO James Mitarotonda told Reuters. "We intend to explore all available options."
