Avon (AVP) is the middle of a PE firm and an activist investor. Avon was planning on selling its North American business to PE firm Cerberus Capital, but Barington Capital, an activist with a ~3% stake, has pushed back against that plan. It thinks the company doesn’t need to do the sale and can turn around its operations on its own. Here’s the full 13-page letter from Barington.

The price is right – idea edition

My own take is that Avon is a declining business. It’s trying to offload the NA business, which is just ~15% of sales, but it’s unclear what that really does to improve its growth prospects. It merely raises some cash to keep Avon going for the interim. Avon’s debt stands at just under 4 times EBITDA right now and double the industry average. It’s debt covenant is 4.25 times and they’ll likely only bring in $500 million from a sale of the NA business. We’ll need to see some more robust cost structure overhaul. The competition is too great in this area; selling beauty products via representatives is an unsexy business for the current consumer market. No one is a winner here, neither Barington nor Cerberus, and certainly not shareholders.

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