Brazil's Natura Cosmeticos has agreed to purchase rival Avon Products Inc for $2 billion. The all-stock deal will position the company as a growing powerhouse in the booming cosmetics and skincare sector.
The transaction is valued at $3.7 billion, including the debt.
"Once the deal is finalised, 76% of the shares will be owned by Natura shareholders, with the remaining 34% held by Avon shareholders. The new company's shares will trade in New York and Sao Paulo. In New York trading, Avon shares jumped as much as 14% to $3.98. In comparison, Natura shares fell to 6.2% to 57.67 reais in Sao Paulo, the biggest decline Brazil has ever witnessed on the benchmark stock index," commented Michael Walker, Director of Corporate Equities at Tochigi Ontario Holdings.
The deal solidifies the biggest direct sellers in the global cosmetics industry. Avon was founded in the US in 1886. The business created an innovative sales model by making fans of the brand saleswomen themselves. The merged companies will employ over 6 million direct sellers, 3200 stores and be operational in over 100 countries worldwide.
Itau Unibanco SA, Citigroup and Banco Bradesco SA are financing $1.6 billion for the cash consideration for Avon preferred stockholders and its debt clearance. Jose Filippo, the Chief Financial Officer, revealed that although Natura wants the bondholders of Avon to seal the deal, the company has already set aside additional finances if it requires to buy back some of the debt.
Since its inception, Avon has used a unique approach to marketing and selling its products. Their door-to-door selling approach is popularly known as "Avon Ladies". However, lately, the business is now dependant on social media.
The direct selling beauty sales have often been replicated as a selling technique by several new and old companies in the 1960s.
After Avon began losing out on demand of its products, they gave up their selling operations in the US in 2015 to Cerebrus Capital Management LP, a private equity firm. Lately, LG Household & Health Care has settled to buy a significant stake of Cerberus and a minority stake of Avon's US business.
After the 2015 agreement, Avon shifted their headquarters to London so they could focus on international markets. However, they were unable to uphold their impetus. They recently revealed that their sellers base fell by 9% annually. The declines were mainly seen in Russia and Brazil. Avon had recently revealed about a 10% reduction to cut down costs. Currently, they are operational in 57 countries.
Natura has a part to play in the decline of Avon. Founded In 1969, Natura is Avon's top competitors. In Brazil alone, Natura has 1 million direct sellers. The company is expanding Into Latin America quickly and is already rolling out digital accounts and card payment machines to provide to their sellers to make their sales process digital.
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| Tochigi Ontario Holdings comments on Natura acquiring Avon Products in $2 billion all-stock deal |
Natura will also introduce direct sales to Body Shop and merge it with their stores, website, and other points of sale to offer more buying options to the customers.
Famous beauty companies such as Estee Lauder Cos. and L'Oreal SA have already acquired famous brands and used them as their front to lure young customers. But Avon has not just failed to attract new customers, but they are continually losing to the latest start-ups and the personal care trends that have been coming up lately.
On the contrary, Natura was quick to become an investor at Dynamo Beauty Venture, a venture capital fund that identifies and acquires minority stakes in emerging brands in the wellness and cosmetic segments. The funds will focus on the US and Europe and companies that have pioneering business models and show immense growth potential.
"Natura revealed that it plans to accelerate the company's current e-commerce initiatives and the development of new products. It also wants to strengthen the brand and emphasize the narrative around Avon's historical focus on women's empowerment. The merger will save between $150 million to $250 million," commented Jonathan Turner, Head of Corporate Trading at Tochigi Ontario Holdings.
Guilherme Leal, the founder of Natura, stated that the two companies were sailing parallel for a long time and finally, they were together on the same boat.