Avon, Fending Off Bids, Is Not for Sale, Preston Says
Presiding over his first annual stockholders meeting as the new chairman of Avon Products Inc., James Preston said Thursday that the company is not for sale, despite overtures by investor Irwin L. Jacobs and direct merchandiser Amway Corp.
Preston told shareholders: “This would be the worst time to sell.”
He said Avon, which lost $405 million last year, is turning itself around and he described the distribution and selling systems of Avon and Amway as “enormously different.”
“We see more conflicts than commonalities,” Preston said of Amway, the Ada, Mich., direct seller of household and other products that commands a sales force of 1 million agents worldwide.
Avon employs a sales force of 1.48 million representatives worldwide who sell the company’s cosmetics and toiletries.
Minneapolis-based Jacobs and Amway said Wednesday that they own 10.3% of New York-based Avon, which in addition to cosmetics is the nation’s largest maker of costume jewelry.
Jacobs and Amway, an unlikely alliance, said they may seek a merger or other business combination.
Avon’s stock soared on the news, jumping $4.75 to close at $36.875 Wednesday on the New York Stock Exchange. On Thursday, profit-taking pared some of that gain as the stock fell back to $36.
Preston took the helm at Avon from former Chairman Hicks Waldron last fall. He told stockholders the company’s share price “has not reflected the value of our basic businesses and still doesn’t.”
Under Preston’s leadership, Avon has been trying to restore its credibility after an ill-fated diversification into health care that pushed it deep into debt.
The $405-million loss last year came despite an 18% gain on sales to $3.06 billion. The shortfall was caused by a $545.6-million charge primarily from its discontinued health care businesses.
Avon has sold a large part of its health care businesses and is in the process of selling the remaining portions to concentrate on its core beauty products business.
Preston told shareholders that Avon expects to reduce its $1.1 billion in debt by $180 million in 1989, $50 million more than he forecast two months ago.
Analyst Diane Temple of Salomon Brothers said the acceleration of the debt reduction program was “good news.”
At the meeting, institutional shareholders mustered a larger-than-expected response on a resolution that could have led to the dismantling of Avon’s poison pill takeover defense.
Much of the two-hour meeting was dominated by animal rights activists who argued in support of a resolution urging more detailed reports on animal tests in Avon’s fragrance and cosmetics business. The group’s proposal was defeated, drawing only 10.1% of the votes cast.
