Avon Products Inc (NYSE:AVP) surged as as high as $2.79 off lows of $2.21 last week after comments from Cerberus Capital Management helped the beauty product company recover from earlier declines. Avon’s biggest institutional investor said that the cosmetics company was not having any liquidity concerns, as its shares were significantly undervalued.
Cerberus bought a 17% stake in the cosmetics company back in December in the form of convertible shares at a $5 strike. On the eve of its investor day conference, a Cerberus spokesperson said its management would be working hand in hand with Avon officials to ensure an effective turnaround for the company.
How rewarding is the deal?
Both Cerberus and Avon have defended the decision to enter into the financial agreement. According to Sheri McCoy, Chief Executive of Avon, the decision was taken after taking an exhaustive review of the options available, which included making alterations in the way the products of the company are sold and going private altogether.
Avon sells skin creams, makeup, home accessories and is known globally for its beauty products and door to door sales business model in over 100 countries. Over the past few years, the cosmetic company has lost some of its hold on the market and has been struggling to bounce back.
Ms. McCoy said that the involvement of Cerberus in Avon has opened doors for her company, but it was not the right time to take Avon private since its stock is trading so low.
Cerberus pumped as much as $435 million into Avon through its 17% stake and will be acquiring 80% of the North American business of the company, which will separate the unprofitable section from the international business division of Avon.