Jacobs, Amway Buy 10.3% of Avon Stock
Avon Products, the giant cosmetics company, said Wednesday that it was being wooed by a partnership formed by Minneapolis investor Irwin L. Jacobs and Amway Corp., a home products marketer. But the company vowed to fight any takeover bid.
The interest in Avon, a 103-year-old institution long known for its door-to-door “Avon Lady” sales force, follows a massive overhaul of the company begun in 1987. Among its key moves was pushing into more upscale markets by acquiring Giorgio Inc. of Beverly Hills and other fragrances sold at department stores.
In a filing with the Securities and Exchange Commission, Amway and Jacobs said they have acquired 10.3% of Avon’s stock and formed an alliance called A/J Partnership. In the statement, the partners said they may seek some type of “business combination” with Avon but no actual buyout bid was disclosed.
Most of the partnership’s 5.6 million shares were bought between April 3 and May 2 for prices ranging from $23 to $32.285.
In heavy trading on the New York Stock Exchange on Wednesday, Avon shares jumped $4.75 to close at $36.875. At that price, the outstanding Avon stock that the partnership doesn’t already own would cost more than $2 billion to acquire.
Avon, however, signaled that it would fight a takeover.
“We want to make it clear that Avon is not for sale,” said Avon Chairman James Preston in a prepared statement. “We believe that Avon can provide the best value to its shareholders by remaining independent. Our strategies have resulted in strong sales and profit growth in the last three years.”
Those Avon strategies have involved moving away from health-care services and nursing home operations to concentrate on selling toiletries, fragrances and household goods--products brought to the public’s attention through its longtime “Avon calling” and its more recent “Look how good you look now” ad campaigns.
Along with brightening Avon’s financial prospects, however, the reorganization has made the company a tempting takeover target, analysts say.
Other Possible Suitors
“They’ve divested themselves of unattractive assets,” explained Eileen Gormley, an analyst at Thomson McKinnon Securities. She added that Avon has “a widely recognized consumer name.”
Others rumored to be interested in Avon include Unilever PLC of Britain, whose proposed $1.55 billion deal to acquire most of the lines of Faberge and Elizabeth Arden fell apart last week, along with Revlon Group Inc. chief and takeover artist Ronald O. Perelman.
Industry analysts said the size and success of Avon’s 1.4-million-member independent sales force--nearly 1 million of whom work abroad--are probably what attracted Amway’s interest in the company. A closely held company with sales of $1.8 billion in the fiscal year ended Aug. 31, Ada, Mich.-based Amway sells a wide range of products door-to-door, including home-care, personal-care and health and fitness goods.
An acquisition, said Bonita Austin, an analyst at Wertheim Schroder, “would beef up Amway’s international business.”
Analysts were less certain of the motives of Jacobs, a corporate raider who has profited before by pursuing a company and then later selling his stock to a higher bidder. At the same time, Jacobs has had experience in the door-to-door sales business as the owner of Watkins Products Co., a personal products company.
Shareholders to Meet
Calls to Jacobs, head of Minneapolis-based Minstar, were not returned. Avon would not comment on whether the Jacobs-Amway partnership has requested merger talks, and Amway refused to comment beyond its SEC filing on its intentions.
The Jacobs-Amway move is expected to enliven Avon’s annual meeting today in New York. Avon already has several anti-takeover provisions in place. One gives shareholders the right to buy Avon stock at half price should another party accumulate more than 20% of the shares, and Avon’s directors have the authority to lower the threshold to 10%.
As part of its overhaul, Avon last September sold Foster Home Health Care, a firm that supplies medical aids such as oxygen and wheelchairs, to Fountain Valley-based Abbey Medical Inc. for $165 million.
In April, the company sold Retirement Inns of America, a chain of eight California facilities for the active elderly, to Costa Mesa-based America Retirement Villas for $15 million.
In addition, Avon has agreed to sell the Mediplex Group--12 nursing homes, six alcohol treatment centers, three psychiatric hospitals and three brain injury treatment centers--to West Corner, a New York firm. Avon also has put up retirement homes in Reno and Los Angeles for sale.
Other Fragrances
Avon moved into the upscale side of the fragrance business with the 1987 purchase of Giorgio Inc. of Beverly Hills for $165 million. The line includes Giorgio, the nation’s top-selling women’s fragrance, and Red.
Avon in 1987 also bought Parfums Stern, a line that includes Oscar de la Renta, Perry Ellis, Valentino and Uninhibited by Cher, which was introduced last year. The two prestige fragrance subsidiaries last year had sales of more than $225 million.
The company’s various divestments contributed to a 1988 loss of $404.5 million for Avon on sales of $3.06 billion, compared to earnings of $159.1 million on sales $2.6 billion in 1987.
First-quarter earnings this year totaled $6.2 million on sales of $704.9 million. A year earlier, net income totaled $27.2 million on sales of $621.9 million, but earnings would have been only $6.1 million in the period if it weren’t for a special accounting change.
AVON AT A GLANCE
Avon is the leading door-to-door marketer of beauty care products. Through retail outlets, Avon sells a line of fashion jewelry and upscale fragrances including Giorgio, Oscar de la Renta, Perry Ellis and Valentino.
1988 1987 1986 Sales (millions) $3.06 $2.76 $2.88 Net income (loss) (millions) $(404.5) $238 $159
Assets: $2.46 billion
Employees: 28,400
Shares outstanding: 53.8 million
12-mo. price range: $18.625-36.875
Wed. close (NYSE): $36.875
COMPANY CHRONOLOGY
Aug. 30, 1984: A group of investors and key managers agrees to buy Tiffany & Co. from Avon for $134.4 million. (Avon purchased Tiffany in 1979 for about $100 million in stock.)
Dec. 22, 1985: Sells Mallinckrodt Inc. to International Minerals & Chemical Corp. for $675 million. (Avon purchased Mallinckrodt in 1982 for $712 million.)
Jan. 15, 1986: Announces the restructuring of its production and administrative staffs, resulting in a reduction of 236 jobs.
April 8, 1987: Agrees to buy Giorgio Inc. of Beverly Hills for $165 million in cash.
Dec. 12, 1987: Completes its sale of the medical supply division of its Foster Medical subsidiary for about $28 million in cash.
April 26, 1988: Announces plans to eliminate about 200 positions from its administrative staff.
May, 1989: Discloses it is being wooed by a partnership formed by Minneapolis investor Irwin L. Jacobs and Amway Corp., a home products company. The company vows to fight any takeover attempt.
