Why Avon's Shares Plunged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of cosmetics giant Avon Products (NYSE: AVP  ) were looking pretty unkempt today, falling as much as 13% in intraday trading after rival Coty pulled its proposed takeover offer.

So what: The price action in Avon's shares is a good reminder of just how dangerous it can be to speculate on buyout proposals or rumors. Although it seemed there was a very motivated buyer here in Coty -- the company even bumped up its offer price and brought in the financial might of Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) last week -- the seller couldn't seem to get its act together.

When it delivered its sweetened offer, Coty gave Avon a deadline of Monday to enter into deal negotiations. Avon responded on Sunday that it would consider Coty's new offer and would respond within a week. Coty, apparently savvy enough to realize that a week from Sunday is well past the Monday deadline, pulled its offer.

Now what: We have a bit of a "he said, she said" here, with Coty sticking to its guns and simply pointing out that Avon didn't meet its deadline, while Avon is playing the befuddled part and claiming that it responded "promptly" (per a press release today).

The whole thing doesn't make Avon's management look like it's on top of its game. Perhaps Avon -- as management made it clear previously -- really does want to stay independent. But that would have been easily addressed by simply rejecting the offer or demanding an even sweeter price to kick off negotiations. As it is, the way Avon handled this situation should make shareholders want to shout, "Get it together, Avon!"

Want to keep up to date on Avon Products? Add it to your Watchlist.

The Motley Fool owns shares of Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer owns shares of Berkshire Hathaway but has no financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter, @KoppTheFool, or Facebook. The Fool’s disclosure policy prefers dividends over a sharp stick in the eye.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 1887838, ~/Articles/ArticleHandler.aspx, 4/20/2014 10:29:35 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement