WSJ : Avon Discusses Stake Sale With Private-Equity Firms

Avon Discusses Stake Sale With Private-Equity Firms

Cerberus, Platinum Equity, others discuss deal with Avon

Avon Products Inc. is in discussions with private-equity firms about an investment that could help shore up the struggling cosmetics company, according to people familiar with the matter.

Avon is running an auction process for what is known as a private investment in public equity, or PIPE, with firms including Cerberus Capital Management and Platinum Equity. Bids are due next week, the people said, with some adding that a PIPE is just one of the options the company is considering.

It’s unclear how big a stake would be sold and there’s no guarantee such a deal will materialize.

New York-based Avon, which has been around for more than a century, has struggled for years to reverse sales declines. Its business of selling cosmetics and home goods door-to-door via a network of around 6 million active representatives has had difficulty keeping up with changing shopper habits, and Avon has been slow to increase sales via the Internet. It has been cutting costs heavily and recently reported a small profit for its U.S. business, which has been particularly troubled.

Shares of the company, with $8.9 billion in sales last year, had fallen by more than half this year and lost roughly 90% of their value from a 2004 high. The company currently has a market value of just under $2 billion.

Securing an investment from a prominent new shareholder could help stabilize Avon’s stock and bolster its liquidity. The company’s debt is rated speculative-grade by major ratings firms, and while its finances are not precarious, its cash has been declining. At the end of June, Avon reported $697 million in cash and equivalents, down from $961 million at the end of 2014.

The company in June obtained a new $400 million, five-year credit line from banks, but its weaker finances resulted in stiffer lending terms. The new credit line, if drawn upon, would be secured by Avon’s U.S. assets and its stock in some subsidiaries.

The company has tried for years to repair weak financial results and stem an exodus of sales representatives. In April, people familiar with the matter said Avon was exploring options including a sale of the company or its North American business.

>>> US Close Dow+0.47% S&P+0.53% Nasdaq+0.84% Russell+0.42% VIX 24.37

Closing Market Summary: Health Care and Technology Lead Stocks Higher

The stock market ended the Thursday session on a higher note after enduring a shaky start to the trading day. The S&P 500 added 0.5%, extending this week's gain to 1.6% while the Nasdaq Composite (+0.8%) outperformed and will enter the Friday session up 2.4% for the week.

Equity indices opened near their flat lines after the futures market was whipped around during pre-market action. The early-morning volatility followed a defensive session in Asia while European markets also struggled. Once the U.S. session got going, the market traded in sideways fashion through the first hour before climbing higher. However, the S&P 500 found resistance near the 1,965 level in the early afternoon, slipping into the close.

Heavily-weighted technology (+1.0%) and health care sectors (+0.9%) displayed strength from the start, and that dynamic kept the S&P 500 from sliding too far below its flat line during the opening hour. The top-weighted tech sector rallied behind Apple (AAPL 112.57, +2.42), which spiked 2.2%, while other large cap components posted slimmer gains. It is worth noting that high-beta chipmakers traded broadly higher in the morning, but the PHLX Semiconductor Index narrowed its gain to 0.4% by the close. That being said, the SOX Index remains on track to end the week higher by 3.0% versus a 2.5% week-to-date gain for the tech sector.

For its part, the health care sector received support from biotechnology, which also contributed to the relative strength in the Nasdaq Composite. The iShares Nasdaq Biotechnology ETF (IBB 350.72, +6.50) spiked 1.9%, extending this week's gain to 4.0%.

The two influential sectors remained ahead of the broader market even as the S&P 500 slid from its high during afternoon action. Similarly, energy (+0.5%) and financials (+0.5%) settled with gains while the remaining sectors struggled to keep pace with the market.

It is worth noting that the industrial sector added just 0.1%, masking a 0.9% jump in the Dow Jones Transportation Average, which pushed its weekly gain to 3.0%. Con-way (CNW 47.55, +12.02) was the big story in the bellwether complex as the stock surged 33.8% after agreeing to be acquired by XPO Logistics (XPO 30.24, -3.75) for $47.60/share or $3 billion.

Elsewhere, Treasuries ended the day just above their lows with the 10-yr yield up three basis points at 2.23%. Meanwhile, the Dollar Index (95.44, -0.57) retreated 0.6%, giving up 0.7% to the euro, which climbed to 1.1292 against the greenback.

Economic data included Initial Claims, Import/Export Prices, and Wholesale Inventories:

  • The initial claims level declined to 275,000 for the week ending September 5 from a downwardly revised 281,000 (from 282,000) while the consensus expected a drop to 275,000
    • After a brief slip to multi-decade lows in July, the claims level has stabilized around 275,000, which is a level that supports the idea that the labor market is encroaching on full employment
  • Export prices, excluding agriculture, decreased 1.3% in August after decreasing 0.4% in the prior reading
    • Excluding oil, import prices decreased 0.4%, which followed last month's decrease of 0.3%
  • Wholesale inventories declined 0.1% in July after increasing a downwardly revised 0.7% (from 0.9%) in June while the consensus expected an increase of 0.3%
    • That was the first contraction since a 0.7% decline took place in May 2013, likely resulting from pricing changes and not changes in inventory management. A sharp drop in petroleum prices in July led to a 4.8% decline in wholesale petroleum inventories, but excluding petroleum, wholesale inventories were flat

Tomorrow, August PPI (consensus -0.1%) will be reported at 8:30 ET while the preliminary reading of the Michigan Sentiment survey (consensus 91.5) will be released at 10:00 ET. The day's data will be topped off with the 14:00 ET release of the Treasury Budget for August.

  • Nasdaq Composite +1.3% YTD
  • Russell 2000 -4.1% YTD
  • S&P 500 -5.2% YTD
  • Dow Jones Industrial Average -8.4% YTD

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance: KKD -16.9%, MTH -5%, LULU -4.8%, PAHC -2.3%

Select Brazil related stocks trading lower after S&P downgrades Brazil's sov rating: PBR -6.3%, VALE -5.4%, ITUB -5.2%, GGB -4.3%, ABEV -3.6%, SID -2.7%, VIV -2.5%, CBD -2.4%, BSBR -1.9%, CIG -1.6%

Other news: YGE -13.1% (light volume, weak in pre-mkt following yday's strength), AMID -12.8% (announced public offering of 7.5 mln common units),  LJPC -8.9% (announced an underwritten offering of common stock; size and terms not disclosed), USAC -8.1% (announced an underwritten public offering of 4 mln common units), USAC -8.1% (announces an underwritten public offering of 4 mln common units), EWZ -4.6% (Brazil ETF lower following rating cut at S&P), MBLY -3.4% (still checking), AQXP -2.7% (prices offering of 5,500,000 shares of common stock at $15.50 per share), SGEN -1.9% (filed mixed securities shelf offering; co also announced a $400 mln offering of common stock), ONCE -1.4% (announced a database lock for the Phase 3 clinical trial of its lead program, SPK-RPE65, for the treatment of RPE65-mediated inherited retinal dystrophies)

Analyst comments: WMB -1.1% (downgraded to Market Perform from Outperform at Wells Fargo), EBAY -1% (downgraded to Hold from Buy at Cantor Fitzgerald)