Avon: Dumpster Fire Rages

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.

Michael Mauboussin: Here’s what active managers can do

michael mauboussin, Credit Suisse, valuation and portfolio positioning, capital markets theory, competitive strategy analysis, decision making, skill versus luck, value investing, Legg Mason, The Success Equation, Think Twice: Harnessing the Power of Counterintuition, analysts, behavioral finance, More Than You Know: Finding Financial Wisdom in Unconventional Places, academics , valuewalkThe debate over active versus passive management continues as trends show the ongoing shift from active into passive funds. Q2 2020 hedge fund letters, conferences and more At the Morningstar Investment Conference, Michael Mauboussin of Counterpoint Global argued that the rise of index funds has made it more difficult to be an active manager. Drawing Read More


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