Coty has staying power in bid for Avon

Coty Inc's offer to buy Avon Products Inc thrust the 108-year-old perfume maker into the spotlight on Monday, and while the privately held company is often an acquirer, pursuing Avon is its biggest gamble by far.

Photo: Avon

The $10 billion bid rejected by Avon could be raised, Coty said. It has the backing of Germany's Benckiser group and Warren Buffett's favorite banker in its bid for the world's largest direct seller of cosmetics.

Coty is quite familiar with acquisitions, having been acquired twice itself and for years having snatched up brands from Rimmel to Sally Hansen to expand its cosmetics lineup.

Its $800 million purchase of Unilever's fragrance unit in 2005 made Coty the largest maker of perfumes and colognes in the world. That deal, which Coty Chief Executive Bernd Beetz said he pursued for some time, gave it the licenses for prestige perfume brands such as Calvin Klein.

Since November, Coty has been led by Chairman Bart Becht, the former longtime CEO of Reckitt Benckiser. New York-based Coty is majority-owned by Joh. A Benckiser, which is also the largest shareholder of Reckitt Benckiser Group PLC.

On Monday, Becht's letter to Avon's board of directors, in which Coty offered $23.25 per share for Avon, was swiftly rejected. Avon continues to search for a new CEO and deal with issues including U.S. government investigations into possible bribery in China and elsewhere.

"I think he sees an opportunity and he's going for it," Ken Harris, CEO of Kantar Retail Americas Consulting, said of Becht.

"From history, I don't think backing down or going away is in Bart Becht's vocabulary," said Harris. "If he really believes in something and he thinks that it makes sense to do, then he's probably going to do it."

BDT Capital Partners, founded by former Goldman Sachs Group Inc partner and longtime Warren Buffett confidant Byron Trott, is working with Coty on financing the proposed acquisition. Coty said it worked with BDT & Co LLC to arrange equity financing from Joh. A Benckiser and BDT Capital Partners, along with certain limited partners in BDT Capital Funds.

Coty, which makes several celebrity fragrances such as Glow by JLO from Jennifer Lopez and Beyonce Knowles' Beyonce Heat, has also worked on getting debt financing through JP Morgan.

"Coty is a real strategic buyer which reportedly has the financial strength to finance the deal," said Consumer Edge Research analyst Javier Escalante.

FROM PARIS TO NEW YORK

Coty was created in Paris in 1904 by Francois Coty, whose first perfume was La Rose Jacquemin. He is credited with founding the modern fragrance industry.

Today, Coty has annual sales of $4.5 billion and more than 12,000 employees. It has large offices in Paris and a new one in Switzerland, which was announced on Monday, in addition to New York.

Avon has $11.29 billion in annual sales, with 6.4 million sales representatives and roughly 40,600 employees.

Coty, which once traded on the New York Stock Exchange, was acquired by Pfizer Inc in 1963 and then was bought by German chemicals manufacturer Joh. A Benckiser GmbH in 1992.

Coty sells its goods everywhere from upscale department stores and perfumeries to mass-market retailers and airport duty-free shops. Its brands range from prestige lines such as Calvin Klein and Chopard fragrances to Sally Hansen and OPI nail polish and Stetson cologne.

CEO Bernd Beetz joined Coty in 2001 after careers at consumer products powerhouse Procter & Gamble Co, where Becht also once worked, and luxury goods giant LVMH.

Under Beetz's tenure, acquisitions such as Unilever's fragrance unit and Chinese skin care company TJoy have helped to diversify Coty's product lineup and improve distribution in a variety of international markets.

A string of deals in late 2010 included buying nail polish maker OPI Products Inc and skin care products line philosophy.

Today, Coty competes in 135 markets but still gets only 26 percent of revenue from emerging markets. Linking up with Avon would allow it to sell some of its own brands through the direct sales channel that Avon helped to pioneer with millions of "Avon ladies" worldwide.