Avon Products skyrocketed as much as 20% to $8.00 per share in Thursday’s market trading. The spike was caused by regulatory filing from a certain PTG Capital Partners indicating its intention to buy the company for $18.75 per share.
The trading of the shares of Avon Products was temporarily halted. The stock closed $7.07 per share, up 6.00%.
Approximately $91 million worth of shares of Avon Products were traded within 25 minutes after the fraud buyout offer for the company, according to Bloomberg
Following the sudden spike in the stock price of Avon Products, the management of the company issued a statement indicating that it “has not received any offer or other communication” from PTG Capital Partners. The company also stated that it was not able to confirm that such entity exists.
Obvious signs buyout offer for Avon Products is a hoax
Some of the market observers immediately noticed that the buyout offer for Avon Products is not real because PTG Capital Partners is very unfamiliar—probably because it does not exist. The purported fraudulent London-based firm did not even spell its name correctly on the SEC filing.
Based on the indicated buyout offer, Avon Products would be valued more $8 billion— almost three times its current market valuation. Obviously, the buyout proposal was a hoax.
RBC noted in a report sent to clients at 12:27PM EST today:
Based on our fundamental work, it is hard to see how a buyer could value AVP at $18.75. Our take out math gets us to $8-$9. In our view, any outfit looking to buy AVP would have to consider the $500-$1 bn in spending required to fix the business (which will likely take 3 years at a minimum).
Also, getting the funding to buy AVP for $18.75 will be a challenge for sure.
If the offer from PTG is legit (which at this point it seems suspect to us), we believe the current take out price of $18.75 will surely come down.
The supposed legal advisor of the PTG Capital, Trose &Cox is a fraud and not a tenant, according to the manager of the building, which was listed as its address. Market observers also noticed that the About section of PTG Capital appeared to have been directly copied from the Wikipedia page and website of TPG Capital. Its SEC filing reads:
“PTG Partners is a global private equity investment firm, focused on leveraged buyout, growth capital and leverage capitalization, investment in distress companies and turnaround situations. We are problem solvers, partners, and pioneers. TPG’s approach to investing helps us to recognize the value – or the potential for value – where other cannot see it.”
It is likely that the scammer here knew that picking a name similar to TPG Capital (a real firm) in an attempt to confuse people (or more likely computers).
There were several signs that the offer was BS – although we did not immediately identify them some we noted extremely quickly on Twitter.
— ValueWalk (@valuewalk) May 14, 2015
The co-author of this article noted on his personal account
— Jacob Wolinsky (@JacobWolinsky) May 14, 2015
Here were three signs that PTG did not exist
1. Unfamiliar player – Avon is a mid cap company. Anyone who is buying it out has billions of dollars and is likely either a big private equity firm or competitor. In this case, PTG was an unfamiliar name, and a quick search of google confirmed this fact.
2. Related to number one – this was the first regulatory filing with the SEC. Firms with over $100M have to file a 13F every quarter. Of course, the firm could be under $100M but even with ultra low interest rates and a lot of leverage buying out a company the size of Avon would be a very mighty deed.
3. The filing had scant contact information, improper grammar, and no U.S. listed number
SEC is reviewing the legitimacy of the buyout offer
The Enforcement Division of the Securities and Exchange Commission (SEC) is reviewing the legitimacy of the buyout offer for Avon Products, Inc. (AVP), a person familiar with the matter told Bloomberg.
Forbes also made an inquiry to the SEC regarding the issue. The Commission’s spokesperson declined to comment whether it can control the filing of fraud tender offers or if it was investigating the activity.
Jerry Reisman of the law firm Reisman Peirez, Reisman and Capobinaco commented, “In reality the SEC’s hands are tied. They are dealing with cyber criminals.”
However, we question this rationale. Of course, the SEC wants to make things easy for filers and not make the task burdensome, but it is not that hard to get a fake document up on Edgar. Although one needs a code one does not need to be registered with FINRA or the SEC to make a bid. We pointed this out when a situation very similar to the one today, happened with a potential bid for Vivus. Avon has a slightly larger market cap than Vivus, but otherwise there are many similarities between the two cases.
In fact, the fake filing is STILL up at the time of this writing.
The question is with this just being yet another example of how easy it is to fool the market, when (if ever) will the SEC change the process for Edgar filings?
Jacob Wolinsky contributed to this article