Brazilian cosmetics maker Natura has announced its intentions to purchase Avon Products Inc. (NYSE: AVP) in an all-stock deal valued at $3.7 billion. Natura expects to close the deal in the beginning of 2020. The merger would create the world’s fourth-largest group of beauty products.
Under the terms of the deal, a holding company would be created with 76 percent of the shares going to current Natura stockholders and 24 percent to Avon’s. That values Avon’s equity at around $2 billion, representing a 28 percent premium over its closing share price on May 21. The combined companies would have gross revenue above $10 billion a year and have more than 40,000 employees across 100 countries.
If the deal closes by the estimated deadline, Natura has agreed to pay $530 million to investors holding Series C preferred shares in Avon. A source with knowledge of the deal says that investment firm Cerberus Capital Management is the Series C shareholder. Avon sold its North American business to Cerberus in 2016 for $435 million. Cerberus sold Avon North America to LG Household & Health Care for $125 million in April.
Natura estimated that the deal to buy Avon could yield between $150 million and $250 million in annual cost savings for the companies. Shareholders of both companies would have to approve the deal. The deal is also subject to regulatory approval from authorities in Brazil and other countries.
Natura was founded in 1969 outside Sao Paulo utilizing a door-to-door model similar to Avon’s. According to research group Euromonitor, Natura has a considerable lead in Brazil’s direct sales market with 31 percent market share. Brazil is Avon’s biggest market, making up nearly a quarter of sales. Avon commands 16 percent of the direct sales market, holding second place behind Natura.
Natura said the purchase of its biggest rival in direct sales fits with its objective of creating a brand with global reach. The transaction complements its acquisitions of Aesop in 2013 and The Body Shop in 2017. Avon’s stock rose 9.1 percent after the announcement of the planned deal. The Brazilian company reversed early losses to end 9.4 percent higher.