Chartwell Plans to Increase Stake in Avon Products to 26%

An investor group turned up the heat on Avon Products Inc. on Thursday in announcing that it has boosted its stake in the cosmetics giant and intends to increase it further soon.

Partners of Chartwell Associates disclosed the purchase of 3.976 million shares of Avon common stock. The limited partnership also said members have agreed to buy an additional 1.233 million shares within 30 days.

The purchases pushed Avon to the top of the New York Stock Exchange’s list of active issues Thursday. It closed at $37 a share, down 75 cents, on volume of more than 4.7 million shares.

The latest stock acquisition confirmed the partnership’s previously stated ambition to enlarge its Avon holdings periodically. But there was no immediate indication that Chartwell has adopted a more aggressive attitude toward Avon or that it plans to launch a hostile bid for control of the big beauty products marketer.

Lissa Perlman, a spokeswoman for the investor group, said Chartwell has said that it would add to the Avon stock it has amassed. It views the stake as a long-term investment, she said.

The two purchases combined would raise Chartwell’s interest in New York-based Avon’s voting stock to about 19.8%, just short of the 20% threshold at which the company’s takeover defense would be triggered, Avon spokesman John Cox said.

When activated, Avon’s “poison pill” would allow stockholders other than those involved in a 20% or larger block to buy shares of the company at half price. This would dilute the value of the 20% block and possibly concentrate a greater proportion of the outstanding stock in friendly hands.

A federal appeals court ruling in late June removed a legal impediment to Chartwell’s further acquisitions of Avon shares. The ruling affirmed a lower court decision that declared an amendment to Avon’s shareholders rights plan invalid. The amendment would have reduced the level at which the poison pill becomes effective to 12.5% from 20%.

Chartwell, which has close ties to one of Avon’s competitors in the direct sales business, Mary Kay Corp., is increasing its total holdings of Avon common stock to 26.19% from 17% with the two purchases.

The Chartwell partners that did the buying were the Fisher brothers of New York and the Getty Family Trust.

Chartwell said it bought most of the shares from A-J Partnership, whose principals include Minneapolis-based investor Irwin A. Jacobs and Amway Corp., a large, privately held direct marketer.

Amway and Jacobs last year unsuccessfully attempted to take over Avon. Avon’s board rejected their two separate takeover bids and has steadfastly maintained that the company is not for sale.

Avon spokesman Cox said the disposal of the A-J partnership stock was not surprising, given that the group was never regarded as a long-term investor in Avon.

He said the sale “eliminates a major source of instability” in Avon stock because it had been widely assumed that A-J partnership could unload its stake on the market at any time.

Chartwell has exerted pressure on Avon on and off since last November. A principal in Chartwell, John P. Rochon, who is vice chairman of Mary Kay, has made several takeover advances on Avon.

Chartwell threatened to wage a proxy fight earlier this year, but a battle was averted in the spring when Avon agreed to support Chartwell nominees to two of the four slots available on its board. The Chartwell candidates were elected at Avon’s annual meeting in May.

The settlement also led to the establishment of a special committee to consider ways of boosting value for Avon stockholders, including a recapitalization, asset sales or even a sale of the entire company.

Members of the committee include the two newly installed Chartwell-backed board members plus four Avon executives.

Cox said the committee has held one meeting so far. No timetable has been set for the panel to present recommendations.