Shares of Avon Products (AVP) are up after activist investors called on the cosmetics company to explore strategic alternatives, including a possible a sale. ACTIVISTS URGE EXPLORATION OF SALE: A group of Avon shareholders of led by Shah Capital, Barington Capital Group and NuOrion Partners, which collectively beneficially own approximately 3.5% of Avon’s outstanding common stock, sent a letter to the board urging it to retain a financial advisor to explore all strategic alternatives to maximize shareholder value, including a sale of the company in whole or in parts. The investors said that they are “extremely disappointed with the deteriorating operating and share price performance that has occurred under the stewardship of the current board.” The group also said it is “dismayed by the board’s failure to act quickly and decisively on the past recommendations its members have made to improve the long-term performance of the company, including promptly hiring a new chief executive officer,” which it called “a step that has been long overdue and members of the shareholder group recommended over two years ago.” As a result, the shareholder group said it has lost confidence in the ability of Avon’s current board to create “meaningful” long-term value for its public shareholders, and “sees no reason why shareholders should continue to wait for a turnaround from a board that has overseen a tremendous destruction of shareholder value.” The shareholder group said it believes believes that the best path forward for Avon is for the board to retain a financial advisor to explore the sale of the company. The shareholder group believes that Avon would be “highly attractive” to buyers due to its well-known brand, a “vast” product offering, “strong” market positions and its 6M direct sales representatives. WHAT’S NOTABLE: In May 2017, Barington Capital and NuOrion Partners called on Avon to begin a search for a new CEO, saying, “During more than five years as CEO, Sheri McCoy has overseen a tremendous destruction of shareholder value.” At the time, the group noted that Avon’s stock price had fallen by more than 80% since appointing McCoy as CEO, with EPS also declining. In August, Avon announced that McCoy would step down as CEO and as a director on March 31, 2018. Avon’s board retained executive search firm Heidrick & Struggles to assist in identifying McCoy’s successor. WEAK THIRD QUARTER EARNINGS AND GUIDANCE: In November, Avon reported third quarter results that missed analysts’ expectations. The company also announced that it expected FY17 results to come in below guidance. “With mixed results in Q3 and some positive trends, we expect to see modest improvement continue in Q4. However, it will not be enough to overcome the slow start to 2017, and thus we expect annual results to come in below our 2017 guidance,” CFO Jamie Wilson said at the time. “We are focused on improving key operating metrics in our core markets,” Wilson said. Previous guidance given in August included FY17 constant-dollar revenue growth in the low single-digits, adjusted operating margin expansion of 100-140 basis points over 2016 and “slightly positive” free cash flow including an expected $65M in increased capital expenditures. PRICE ACTION: Avon rose 1.7% to $2.47 in morning trading.
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