Private company Coty, which has traditionally focused on fragrance, offered $10 billion in cash to buy struggling Avon, but it's being rebuffed -- even though the market values Avon at only about $8 billion. Coty's bid of about $23.25 per share represented a 20% premium to Avon's closing stock price last Friday.
Avon's aggressive take: The bid "substantially undervalues the company." Coty's response: It would consider a higher offer if Avon is willing to let it take a look at its books. In other words, prove it.
It's pretty amazing when corporate managements take the hard line even when they possess a glaring lack of bargaining power. Avon's been floundering for quite some time now; my November 2010 underperform CAPScall on Avon and my negative take with fellow Fool Dayana Yochim have proved right so far. (View my CAPS track record here.)
Avon's many issues include slowing sales in emerging markets such as Eastern Europe and Brazil, and even a bribery probe in China. Furthermore, the Avon Lady has lost popularity in more developed markets, like right here at home, and the company's still searching for a replacement for longtime CEO Andrea Jung, who is staying on as board chair.
The frump factor
The situation parallels retailer Talbots'
Has the Talbots buyout materialized yet? Nope.
Meanwhile, another struggler, Liz Claiborne
Stick with strength
Forget the acquisitive speculation: Investors should seek strong companies to invest in instead. Estee Lauder
Likewise, with cases such as Talbots, investors would be better off buying shares of retailers that are proving their competitive mettle. Take Buckle
People who are buying up shares of Avon today at nearly 20% more than Friday's closing price are taking a serious gamble with their money. Investing in messed-up companies based solely on the notion of possible acquisitions isn't the high road in investing; in fact, it's an incredibly risky one.
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