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Coty bids for LatAm boutique Avon | The Deal Economy

The Deal Economy Q1 round up


Firstly of course, everything else that happened in March but you fortgot to chalk up, was scribbled into sensible commentary on the weekend


here  – The Deal Economy _ March 15-31 2012 (Hedge Funds, PE)


and here – The Deal Economy Pt II_ March 15-31 2012 ( College Basketball, Small IPO is a better IPO, Dodd Frank is coming)


And to wit you forgot the Deal Economy bombshell on everyone, here is the Q1 summary ( JP Morgan survived with $1 bln income from fees)


JP Morgan billed $1.260 bln in Fee in these three months from Investment Banking. Guess the number from M&A? It is $145 mln. Goldman Sachs collected almost twice that. Even Morgan stanley.


Bonds maketh Citi, Deutsche, JP Morgan and Bank of America and Bond issuance maketh the biggest chunk of $5.5 bln and M&A $5 bln while Equities and Loans made $3 bln each


April’s first trimmings  (AVP:US)


The not-so-good reason behind my snappy yellow headline : Thats the way they all run luxury and fashion, just look at the trail of dead PE and flailing Institutional investors suffering from looking for Corporate governance missions at these places..


While the offer from Coty is $23.25 per share, shares have already caught up to that $23 mark from Friday’s $19. Coty, though it manages a couple of Calvin Klein brands is stilla spin off from Pfizer, the Healthcare company but has $4.5 bln sales of its own. It also owns a little of J Lo, Beyonce and now Lady Gaga ( Monster by Lady Gaga is launching in 2012) Largest shareholder Joh Benckiser brought CEO Bart Becht from his listed concern Reckitt Benckiser as CEO after Bart retired at the helm of Reckitt Benckiser.


Avon CEO Andreas Jung stepped down in December 2011 and Chinese have imprisoned Avon executives for graft in the Middle kingdom. Despite losing less than half a million dollars each in the last two quarters of 2011, Avon  reported $3 bln of sales in Q4 alone SEC started its own investigation into Avon in the last week of October touching on how Avon managed analyst interaction and at that point like all equity in 2011, Avon shares were down 35% for the year. Latin America, Eastern Europe and Asia make for almost 3 in 4 of Avon’s sales or $2.2 bln in Q4

However $23 is the price when investigations into the company started and the company could be excused for looking at a 50% premium to this price. Even isn value terms however a 30% premium over the $23 price makes more sense than using the prevailing price from just 6 months ago as the company has not announced any distress sales despite the crisis enveloping it since October 2011. The company was yet only fairly valued at its $35 price in 2009 and emerging market multiples sould probably be 50% higher given the 5X-10X factor of growth in each of these markets for GDP alone, consumption growth higher by the same factor implying a sales growth of almost 30% valuing the company at 20X multiples the price could go to $40 as well, though the industry seems busy with consolidation as for the retail storefronts with  Walgreen managing a deal in 2009 without a competitor, PE stuck with Fashion and retail brands without exit for more than 5 years and an almost clubby management culture breaking the probability of growth even at L’Oreal when it took over The Body shop, though it manages very well by itself for its own bouquet of brands.

We would aver to Bart Becht, that no it only seems like a buyers market and it is nearly not a buyers’ market right now..making Banckiser good for $20 bln if they can actually run the post merger company given the distribution strengths of Avon and Coty’s culutural aloofness with Monster and Calvin Klein Avon rejects offer

FT blogs: How could it be in the interest of shareholders..


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