Avon Products will sell its Avon Japan business to private equity firm TPG Capital for 7.3 billion yen ($90 million) in cash. Avon currently owns 74.67% of the Japan business unit, and TPG plans to launch a tender offer in Japan for all outstanding shares of Avon Japan. Avon Japan represents less than 2% of New York-based Avon’s total sales, the company said.
Avon Products, Inc. (NYSE: AVP) today announced that it has agreed to tender its 74.67% ownership interest in its Avon Japan business to an affiliate of TPG Capital, a global private investment firm that invests in companies across a broad range of industries and geographies. Under the terms of the agreement, TPG Capital will pay a total cash payment of 7.3 billion yen, or approximately U.S. $90 million, for Avon’s stake in the business and for pre-paid royalties for certain intellectual property licenses.
As part of the transaction, TPG Capital is launching a tender offer in Japan for all outstanding shares of Avon Japan at 74 yen per share, the same price that Avon has agreed to for its shares. Avon’s sale of its shares is not conditional upon TPG Capital’s acquisition of the 25.33% minority stake. Avon Japan is the only subsidiary in Avon’s geographic portfolio that is publicly traded (JASDAQ market of Osaka Securities Exchange 4915: JP).
The proposed transaction is subject to customary closing conditions and is targeted to close in the fourth quarter 2010. Avon said that the transaction would have no material impact on its financial statements as Avon Japan represents less than 2% of its total company sales. Effective with fourth quarter 2010 reporting, Avon Japan will be accounted for as a discontinued operation.
Avon said that the planned sale is consistent with its strategy to focus its portfolio and investments on direct selling markets with higher growth potential. In contrast to other Avon markets, Avon Japan generates more than half of its sales from direct mail, and a large portion of its sales come from products unique to Japan.
Andrea Jung, Avon’s Chairman and Chief Executive Officer, said, “We are pleased to conclude this agreement with TPG Capital as we further focus our investments on higher growth opportunities. While Japan is an important consumer market, our analysis indicates that we would need to commit significant additional investment in order to generate profitable growth in the near to intermediate term.”
As part of the transaction, Avon has agreed to grant TPG Capital rights to its local Japan formulas and products and certain other formulas and products for use in Japan and, subject to certain restrictions, for use outside of Japan. Avon also has agreed to transfer to TPG Capital ownership of certain local Japan and other trademarks. In addition, for a period of time, TPG Capital will have rights to use the “Avon” name in Japan.
Avon Associates in Japan are expected to continue in their roles and the existing Avon Japan management team will continue to provide support during the transition. TPG Capital will also have all the necessary functions and services to enable the continued success of the company.
Avon, the company for women, is a leading global beauty company, with over $10 billion in annual revenue. As the world’s largest direct seller, Avon markets to women in more than 100 countries through approximately 6.2 million independent Avon Sales Representatives. Avon’s product line includes beauty products, as well as fashion and home products, and features such well-recognized brand names as Avon Color, Anew, Skin-So-Soft, Advance Techniques, Avon Naturals, and Mark. Learn more about Avon and its products at www.avoncompany.com.
TPG Capital is a global buyout group of TPG, the private investment firm with approximately $47 billion of assets under management. TPG Capital has extensive experience with investments executed through leveraged buyouts, recapitalizations, joint ventures and restructurings. TPG Capital’s investments span a broad range of industries, and have included numerous investments in companies that operate in the consumer/retail sector such as Bally, Burger King, China Vogue, Daphne, Debenhams, J. Crew, Lilliput, Myer, Neiman Marcus and Republic. Since 1992, TPG Capital has invested in more than 150 transactions, and as of the date hereof, TPG Capital has more than 165 professionals globally. Currently, TPG Capital has about 70 active investments, and portfolio companies in which TPG has significant ownership operate in more than 130 countries. TPG has also made several investments in Japan, including Tomy Company, Ltd., a large cap toy maker, and JCR Pharmaceuticals Co., Ltd., a bio generic medical supply maker.
CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements in this release that are not historical facts or information are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “estimate,” “project,” “forecast,” “plan,” “believe,” “may,” “expect,” “anticipate,” “intend,” “planned,” “potential,” “can,” “expectation” and similar expressions, or the negative of those expressions, may identify forward-looking statements. Such forward-looking statements are based on management’s reasonable current assumptions and expectations. Such forward-looking statements involve risks, uncertainties and other factors, which may cause the actual results, levels of activity, performance or achievement of Avon to be materially different from any future results expressed or implied by such forward-looking statements, and there can be no assurance that actual results will not differ materially from management’s expectations. Such factors include, among others, the following:
* our ability to implement the key initiatives of, and realize the gross and operating margins and projected benefits (in the amounts and time schedules we expect) from, our global business strategy, including our multi-year restructuring initiatives, product mix and pricing strategies, enterprise resource planning, customer service initiatives, product line simplification program, sales and operation planning process, strategic sourcing initiative, outsourcing strategies, zero-overhead-growth philosophy, Internet platform and technology strategies, information technology and related system enhancements and cash management, tax, foreign currency hedging and risk management strategies;
* our ability to realize the anticipated benefits (including any projections concerning future revenue and operating margin increases) from our multi-year restructuring initiatives or other strategic initiatives on the time schedules or in the amounts that we expect, and our plans to invest these anticipated benefits ahead of future growth;
* the possibility of business disruption in connection with our multi-year restructuring initiatives or other strategic initiatives;
* our ability to realize sustainable growth from our investments in our brand and the direct-selling channel;
* our ability to transition our business in North America, including optimizing our product portfolio and enhancing field fundamentals;
* a general economic downturn, a recession globally or in one or more of our geographic regions, such as North America, or sudden disruption in business conditions, and the ability of our broad-based geographic portfolio to withstand such economic downturn, recession or conditions;
* the effect of political, legal, tax and regulatory risks imposed on us, our operations or our Representatives, including foreign exchange or other restrictions, interpretation and enforcement of foreign laws including any changes thereto, as well as reviews and investigations by government regulators that have occurred or may occur from time to time, including, for example, local regulatory scrutiny in China;
* the inventory obsolescence and other costs associated with our product line simplification program;
* our ability to effectively implement initiatives to reduce inventory levels in the time period and in the amounts we expect;
* our ability to achieve growth objectives or maintain rates of growth, particularly in our largest markets and developing and emerging markets, such as Brazil or Russia;
* our ability to successfully identify new business opportunities and identify and analyze acquisition candidates, secure financing on favorable terms and negotiate and consummate acquisitions as well as to successfully integrate or manage any acquired business;
* the effect of economic factors, including inflation and fluctuations in interest rates and currency exchange rates, as well as the designation of Venezuela as a highly inflationary economy, and the potential effect of such factors on our business, results of operations and financial condition;
* our ability to successfully transition and evolve our business in China in connection with the development and evolution of the direct selling business in that market, our ability to operate using a direct-selling model permitted in that market and our ability to retain and increase the number of Active Representatives there over a sustained period of time;
* general economic and business conditions in our markets, including social, economic and political uncertainties in the international markets in our portfolio;
* any developments in or consequences of internal investigations and compliance reviews that we conduct, and any litigation related thereto, including the ongoing investigation and compliance reviews of Foreign Corrupt Practices Act and related U.S. and foreign law matters in China and additional countries, as well as any disruption or adverse consequences resulting from such investigations, reviews, related actions or litigation;
* information technology systems outages, disruption in our supply chain or manufacturing and distribution operations, or other sudden disruption in business operations beyond our control as a result of events such as acts of terrorism or war, natural disasters, pandemic situations and large scale power outages;
* the risk of product or ingredient shortages resulting from our concentration of sourcing in fewer suppliers;
* the quality, safety and efficacy of our products;
* the success of our research and development activities;
* our ability to attract and retain key personnel and executives;
* competitive uncertainties in our markets, including competition from companies in the cosmetics, fragrances, skin care and toiletries industry, some of which are larger than we are and have greater resources;
* our ability to implement our Sales Leadership program globally, to generate Representative activity, to increase the number of consumers served per Representative and their engagement online, to enhance the Representative and consumer experience and increase Representative productivity through investments in the direct-selling channel, and to compete with other direct-selling organizations to recruit, retain and service Representatives and to continue to innovate the direct selling model;
* the impact of the seasonal nature of our business, adverse effect of rising energy, commodity and raw material prices, changes in market trends, purchasing habits of our consumers and changes in consumer preferences, particularly given the global nature of our business and the conduct of our business in primarily one channel;
* our ability to protect our intellectual property rights;
* the risk of an adverse outcome in any material pending and future litigations or with respect to the legal status of Representatives;
* our ratings and our access to financing and ability to secure financing at attractive rates; and
* the impact of possible pension funding obligations, increased pension expense and any changes in pension regulations or interpretations thereof on our cash flow and results of operations.
Additional information identifying such factors is contained in Item 1A of our 2009 Form 10-K for the year ended December 31, 2009. We undertake no obligation to update any such forward-looking statements.
SOURCE Avon Products, Inc.