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Activists to Press Avon to Explore a Sale

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A group of activist investors are joining together to call on

Avon Products
Inc.


AVP 3.40%

to seek a buyer, in a move that could set up a fight for the company’s board as a key deadline looms.

Three investors, who together own a roughly 3.5% stake in Avon, believe a yearslong effort to reshape the storied brand has run out of time and requires new ownership and leadership, according to a letter they plan to send to the board that was reviewed by The Wall Street Journal.

Shah Capital, Barington Capital Group LP and NuOrion Partners have all been investors for several years and pushed, in some cases publicly, for changes at the beauty-products seller. While Barington and NuOrion had earlier partnered, Shah has just joined their alliance.

After struggling for years, Avon is already undergoing a major transition, with Chief Executive

Sheri McCoy

expected to step down on March 31.

Ms. McCoy, who started in 2012 soon after Avon rejected an $11 billion takeover offer, said in November that a transformation of the company was poised to bear fruit, though the results would take time to show.

“Avon’s board of directors and management team are committed to delivering value for all shareholders and will continue to take actions to improve performance,” a spokesman said Sunday, pointing to the CEO search as being on schedule and saying the company values shareholder input. “We are confident that the changes we are undertaking will strengthen and grow the business.”

In December 2015, as Barington and NuOrion began their public criticism, Avon struck a deal to sell its North American operation and a 17% stake in the publicly traded international business to private-equity firm Cerberus Capital Management LP.

The company has been cutting costs, revamping its offerings and trying to improve its relationships with representatives, but results continued to slide.

The stock is down more than 50% over the past year and its market value has sunk to just over $1 billion.

The investors plan to criticize the company’s operational and stock performance, echoing complaints Barington and NuOrion made last year when they called for a CEO change. This time, they will raise concerns that the board, including the Cerberus representatives, isn’t equipped to complete the turnaround, according to the draft letter.

They also criticize the pace of the CEO search.

Such comments are often a prelude to a fight to change the board, which the investors could launch ahead of a deadline to nominate director candidates in coming weeks.

“We have lost confidence in the ability of the board to create meaningful long-term value for its public shareholders,” they write. “We believe that a better capitalized strategic buyer would do a much better job unlocking the tremendous value potential at Avon.”

The investors believe a range of buyers could be attracted to Avon’s 130-year-old brand, annual sales of more than $5.7 billion, strong positions in developing countries and tax efficiency.

Write to David Benoit at david.benoit@wsj.com

Appeared in the January 29, 2018, print edition as ‘Investors Press Avon To Find A Buyer.’



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