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Why Avon Products, Inc. Stock Surged Today

By Jeremy Bowman – Sep 18, 2018 at 9:42AM

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Shares of the cosmetics company were rising on interest from Brazil's Natura Cosmeticos.

What happened

Shares of Avon Products, Inc. (AVP) were moving higher today on news that a Brazilian company had approached the beauty supplier about a potential acquisition. As a result, shares of the struggling cosmetics company spiked, trading up 10.6% as of 2:47 p.m. EDT.

A makeup artist putting lipstick on a model.

Image source: Getty Images.

So what 

According to The Wall Street Journal, Brazil's Natura Cosmeticos had broached the idea of a takeover with Avon, though it doesn't appear that discussions advanced from there. Avon told the Journal it had received interest from other potential buyers but was focused on a turnaround for the time being. 

Natura Cosmeticos is a multilevel marketing company like Avon, and Avon has a strong business in Latin America, making a takeover seem logical. However, Natura said, "There are no negotiations in progress concerning a possible acquisition of Avon."

Now what

Considering Avon's struggles in recent years, it's not surprising that shareholders would cheer a potential buyout nor that a buyer would seek to acquire it, as Avon still has considerable brand recognition and a formidable sales force. Shares are down 89% over the last five years, a sign of the company's woes, and fell as low as $1.38 this summer, but have bounced back since then, following its second-quarter earnings report and insider buying by activist investor and board member James Mitarotonda. 

At this point, it doesn't seem that a deal will go through, but Avon has been focused on the Brazilian market, recently appointing a new general manager for the market, which could attract Natura's interest. After its rally over the last two months, the stock might now have finally bottomed out.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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