Avon expected to sell 80% stake of its North America unit to Cerberus Capital

 In a deal totalling USD605 Million, Equity firm, Cerberus Capital Management is taking 80.1% stake in cosmetics company Avon Products' North American business and buying a 17% stake in the company. The deal is broken into two parts, wherein Cerberus is expected to invest USD435 Million in Avon Products which is a preferred stock deal and other in which the company will buy 80.1% of stake in North Americas Business. Moreover, the private equity firm will also add two executives to Avon Products' board. Six executives on Avon Products' board will step down and the makeup company and the private equity firm together will select two more directors, they said in a joint statement announcing the deal.

Under this deal, Avon’s North American business will be separated into a privately held company that will assume about USD230 million of long-term debt from Avon, partly offset by a USD100 million cash contribution from the cosmetics maker. The deal was advised to Avon by Banks Goldman Sachs and Centerview Partners. The deal is significantly smaller when compared to the USD10.7 billion takeover offer from Coty Inc. which was rejected by Avon in 2012.

According to TechSci Research, Avon has been running its business in losses since last few years and was performing even worse in America region. Increasing market share or cheap, good quality cosmetics have increased competition in market which put a lot of pressure on companies like Avon. Such investments would help the companies to improve its balance sheets by cash inculcation and also let the company to restructure its operational performance. These kind of investments help the companies to create a long-term value, provide greater financial flexibility and enhance operational efficiencies.