Coty Inc. Proposes to Acquire Avon Products, Inc. for $23.25 Per Share in Cash

NEW YORK, April 2, 2012 /PRNewswire/ -- Coty Inc., a leading global beauty company, today announced that it has submitted a non-binding proposal to acquire Avon Products, Inc. (NYSE: AVP) for $23.25 per share in cash in a mutually agreeable and negotiated transaction.  The proposal, valued at approximately $10 billion, represents a very substantial premium of 27% over the three month volume-weighted average price for Avon shares. Coty has held extensive discussions with its financing sources about obtaining the debt and equity financing necessary to complete this transaction, and is confident that such financing will be available. 

Following extensive but unsuccessful attempts to engage Avon in discussions regarding its proposal, Coty has decided to make its proposal public in order to inform Avon's shareholders of the significant value in a transaction.  Coty said it has no intention of pursuing an acquisition on a hostile basis.

"Our objective is to engage in discussions with Avon and conduct due diligence so that we and Avon can together determine if there is a basis for a transaction. We believe Avon's shareholders would want their Board to explore with us the benefits to shareholders of a transaction," said Mr. Bart Becht, Chairman of the Board of Directors of Coty.

In a letter to Avon's Board of Directors, Mr. Becht detailed the compelling strategic and financial benefits of this combination:

• The combination would create an iconic beauty company and strengthen its position as a global leader in the beauty industry.
• The combination will create new growth opportunities and benefit consumers by providing greater access to innovative, quality and branded beauty products across multiple distribution channels.
• Coty believes that its proposed price is a full and fair one, based on public information about Avon, and it is prepared to consider increasing its price if Avon can demonstrate through diligence that there is greater value.
• BDT & Company, LLC is arranging equity financing from the Joh. A Benckiser companies and BDT Capital Partners along with selected Limited Partners in the BDT Capital Funds.  J.P. Morgan Securities LLC is arranging the debt financing.
• Coty has committed to reinvesting a material part of the cost synergies of the combination to address Avon's operational issues and drive future growth.
• The combined company would draw on the strength and depth of Avon's team to enhance Coty's experienced and highly successful leadership team.
• Coty anticipates being able, with Avon's cooperation, to complete due diligence quickly and move forward with a mutually agreeable transaction.

A copy of the letter being delivered by Coty to Avon this morning follows below:

April 2, 2012

Andrea Jung, Chairman and Chief Executive Officer
Avon Products, Inc.
1345 Avenue of the Americas
New York, NY 10105

Dear Andrea:

In letters on March 7, March 19 and March 30, 2012, we made what we believe to be compelling proposals to acquire Avon Products, Inc. ("Avon") in a transaction that would provide full value to your shareholders.  We were surprised and disappointed that Avon's Board of Directors has no interest in a discussion to explore our acquisition proposal.  We are confident your shareholders would want the Board to at least explore with us the possibility of such a compelling transaction.  We, therefore, have decided to make our proposal public so that your shareholders have an opportunity to voice their views as to whether Avon's Board should engage in discussions with us regarding our proposal.

We remain interested in pursuing discussions in a mutually agreeable and negotiated manner, and have no intention of pursuing our proposal on a hostile basis.

Background on Coty

Coty is a global leader in Beauty with $4.5 billion in net annual revenues.  Its products are sold through traditional retail as well as prestige distribution channels.  It is a global leader in Fragrances and Nail Products and is also an emerging leader in Color with a strong platform in Skin & Body Products.  Coty has a world class portfolio of brands in these categories such as Calvin Klein, Chloe, Marc Jacobs, Davidoff, Philosophy, OPI, Playboy, Sally Hansen, Adidas and Rimmel.

Coty has grown net revenues on a like for like basis at 7% over the last two years driven by its superior innovation, branding and execution capabilities that excites consumers.  This growth was achieved despite the fact it derives only 26% of its revenues from emerging markets.  Coty has a track record of strong financial performance with EBITDA margins expanding by 300 basis points over the past two years to a 17% margin.

Rationale for the Combination

The combination would create a new strong company in Beauty to be called "Avon– Coty."  It will be focused on providing consumers and account representatives innovative, quality and branded beauty products across distribution channels.  The scale and complementary category and distribution strengths of the combined business as well as reinvestment of cost synergies will establish a platform for healthy, stronger, sustainable and profitable growth for "Avon – Coty" and its account representatives and business partners.

The combined company will benefit from complementary category strengths. Coty is an innovation leader in Fragrances and Nail Products, while Avon has more core strength in Color and Skin and Body Products.  Coty's approach to innovation, branding and execution will be used and targeted to deliver innovative and quality products across all Beauty categories for "Avon – Coty."  The Coty Board is committed to reinvest cost synergies realized from the combination, to ensure the new company will deliver on its promise of more innovative and quality products across the various Beauty segments.

Avon has a strong presence in emerging markets with over 68% of its revenues coming from these markets.  Many of the Beauty categories in these markets are dominated by "door to door" distribution.  While many of Coty's brands already have good levels of awareness in many of these markets, they are not widely available for sale at this point in time due to lack of Coty infrastructure.  Distribution of appealing Coty mass beauty brands via Avon's "door to door" distribution channel will therefore create new and attractive growth and earnings opportunities for "Avon – Coty" and its 6.4 million account representatives.

The Coty Board believes that a very material part of the cost synergies realized from combining the two businesses would have to be reinvested to address Avon's operational issues and drive growth and earnings for "Avon – Coty" and its account representatives.  While due diligence will fine tune Coty's perspective, it is expected that reinvestment will principally focus on improving supply service levels, delivering better and more innovative products, improving systems and enhancing programs for and support to account representatives.

To ensure the success of the combination, the Coty Board is strongly committed to drawing on the strength and depth of the teams at both Avon and Coty.

Based on the foregoing, the Coty Board believes a new iconic Beauty company can and should be created because of its clear benefits to consumers, account representatives, employees and shareholders.

Our Proposal

To reiterate the terms of our proposal, we have submitted a non-binding indication of interest to acquire all of the outstanding shares of common stock of Avon at a price of $23.25 per share in cash in a mutually agreeable and negotiated transaction (such non-binding indication of interest, the "proposal").  As you know, this price was increased from our initial indication of interest on March 7th of $22.25 per share to be responsive to the Avon Board's indication that such price was not sufficient to discuss a combination.  Our proposal of $23.25 per share represents a very substantial premium of 27% over the three month volume weighted average price for Avon shares.   

We do not understand how your Board's unwillingness to discuss our proposal can serve the best interests of Avon's shareholders.  In rejecting our request for discussions you have referred, among other things, to questions your Board has about value.  We believe, based on an extensive review of public information about Avon, that our proposed purchase price is a full and fair one.  As we have indicated to you, if Avon's Board does not believe that our proposal represents attractive value, we would think it would be a better course for you to provide us with access to non-public information so that you can explain where you see greater value.  If you can demonstrate that there is greater value than is apparent from publicly available information, we would be prepared to consider increasing the price of our proposal.  At the same time, as I am sure you can appreciate, we will need to conduct due diligence to confirm the reasonableness of our $23.25 per share proposal.

Financing

We were also surprised that you cited as one of your reasons for refusing to discuss our proposal the purported "uncertainty" of our proposal.  We offered on several occasions to have you and your advisors speak with our equity and debt financing sources so that you would understand how confident we are that we can finance a transaction.  We are concerned that you would make a determination about financing without making any serious inquiry about the status of our financing.

As we have discussed and reiterated in our March 19th letter, we are confident in our ability to fully finance a mutually agreeable and negotiated transaction.  We have worked extensively with BDT & Company, LLC ("BDT") to arrange equity financing, which will be provided by the Joh. A Benckiser companies and BDT Capital Partners, along with selected Limited Partners in the BDT Capital Funds.  We have also worked extensively with J.P. Morgan Securities LLC ("JPMorgan") to obtain debt financing for the transaction.  Our discussions and the significant work BDT and JPMorgan have done to date give us confidence that all such financing is readily available.

Both BDT and JPMorgan remain available to discuss our financing and we again encourage you to speak with them before making any determination about our ability to obtain financing.

Transaction Process and Timing

Our internal transaction team, BDT and JPMorgan have already completed extensive analysis and due diligence on Avon based on publicly available information.  As we have indicated, we believe that with your cooperation, we can together determine within a short period of time whether there is a basis for a transaction and negotiate definitive transaction agreements. 

Given the short period of time involved, our proposal would not interfere with your CEO search.  However, we would expect that you would not hire a new CEO while we are jointly pursuing this compelling proposal.

In addition to BDT and JPMorgan, we are being advised by Blackstone Advisory Partners L.P. and we are working with Skadden, Arps, Slate, Meagher & Flom LLP as legal advisor.  We, our advisors and financing sources are prepared to work with you and your advisors to endeavor to finalize a transaction. 

The submission of this proposal has the full support of our Board and our shareholders.  Based on our initial review, we believe that the proposed combination should not encounter any significant regulatory issues. 

This letter and our proposal constitute a preliminary, non-binding indication of interest to acquire the outstanding shares of Avon, and our proposal is being submitted based on the understanding that it is not an offer that is capable of being accepted and that there will be no binding agreement between us or any commitment or obligation on either party with respect to the proposal or a possible transaction unless and until a definitive agreement is executed by Avon and Coty.  We reserve the right to discontinue discussions regarding, and withdraw, our proposal at any time.  Our proposal is subject to customary conditions, including, among other things, our satisfaction with the results of due diligence in our sole discretion, the negotiation of a mutually satisfactory definitive agreement, completion of financing and the approval of the negotiated terms of a transaction by our Board of Directors.

Given our willingness to propose a purchase price at an attractive premium, and given the substantial uncertainties concerning Avon's business and liabilities, we believe it is very much in your shareholders' best interests for you to start a dialogue with us about our proposal and provide us with access to the relevant company information.  If you are going to foreclose this opportunity for your shareholders, we would hope that you would do so on an informed basis.

We look forward to discussing this transaction further with you.

With best regards,
Bart Becht

About Coty Inc.
Coty was created in Paris in 1904 by Francois Coty, who is credited with founding the modern fragrance industry.

Today Coty Inc. is a recognized leader in global beauty with annual net sales of $4.5 billion. Driven by an entrepreneurial spirit, passion, innovation and creativity, Coty Inc. has developed an unrivaled portfolio of notable brands and delivers its innovative products to consumers in 135 markets worldwide.

The Coty Prestige brand portfolio is distributed in prestige and ultra-prestige stores and includes Balenciaga, Bottega Veneta, Calvin Klein, Cerruti, Chloe, Chopard, Davidoff, Jennifer Lopez, Jil Sander, JOOP!, Karl Lagerfeld, Kenneth Cole, Gwen Stefani, Lancaster, Marc Jacobs, Nikos, philosophy, Roberto Cavalli, Sarah Jessica Parker, Truth or Dare by Madonna, Vera Wang, Vivienne Westwood and Wolfgang Joop.

The Coty Beauty brand portfolio is more widely distributed and includes adidas, ASTOR, Beyonce Knowles, Celine Dion, David and Victoria Beckham, Elite Models, Esprit, Exclamation, Faith Hill, GUESS?, Halle Berry, Heidi Klum, Jovan, Kate Moss, Kylie Minogue, Lady Gaga, Manhattan, Manhattan Clearface, Miss Sporty, Nautica, N.Y.C. New York Color, Nicole by OPI, OPI, Pierre Cardin¹, Playboy, Rimmel, Sally Hansen, Stetson, Tim McGraw, TJoy and Tonino Lamborghini.

Coty and Puig S.L. have a strategic partnership for the distribution of the perfume lines of Antonio Banderas, Carolina Herrera, Nina Ricci, Paco Rabanne, Prada, Shakira and Valentino in the United States and Canada.

Additional Information

This communication does not constitute an offer to buy or solicitation of an offer to sell any securities.  No tender offer for the shares of Avon Products, Inc. has been commenced at this time and Coty Inc. has not indicated any intent to do so.

SOURCE Coty Inc.

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