Dive Brief:
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Executives from beauty retailer Avon Products Inc. and Cerberus Capital Management outlined plans for a turnaround Thursday amid skepticism from investors, which includes $350 million in cost cutting.
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The private equity firm is investing $435 million in Avon, and plans to take a nearly 17% stake in the company and acquire 80% of its North American business. Avon shares have fallen 30% since the deal was announced late last year.
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Shares rose 8% Thursday to $2.64, after rising as much as 13% during the day as executives spoke at an Avon investor event in Suffern, N.Y.
Dive Insight:
CEO Sheri McCoy said Thursday that the retailer is running out of options and that going private wasn’t feasible considering the low share price, reports the Wall Street Journal. She went on to say that the Cerberus investment would open “many doors” and allow for more time for a turnaround; that will entail replacing half the directors on Avon’s board and suspending its quarterly dividend.
The company is growing and has huge potential not reflected in its results, according to Cerberus senior managing director Steven Mayer, who said that currency fluctuations have weighed down its overall sales by 19%.
With beauty such a successful, if competitive, retail space, and considering the popularity of subscription beauty retail like that from the likes of Birchbox, Avon seems well positioned, considering its 130-year-long history and direct sales record. But it seems to have missed the boat, and Cerberus executives say they aim to correct that.
“We see…value in the brands that are not reflected in the stock today,” Mayer said, according to the Wall Street Journal.
