Did Avon Make A Huge Mistake Rejecting Coty Bid?

Coty Inc. withdrew its $10.7 billion takeover bid for Avon Products (NYSE:AVP) yesterday, saying Avon had missed its deadline to begin discussions. Shortly after the withdrawal, shares of Avon fell 14 percent in pre-market trading.

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Last week, Coty raised its unsolicited bid to $24.75 per share from an earlier $23.25 per share offer on the contingency that Avon had until a Monday deadline to respond. The fragrance company’s bid had the financial backing of Warren Buffet’s Berkshire Hathaway (NYSE:BRK-A) and others.

In the past, Avon rejected all of Coty’s earlier bids without entering into discussions. With this most recent bid, Avon said that it would respond to Coty’s latest offer within a week. However, Coty withdrew its proposal on May 14, five days after raising its bid.

An Atlantic Equities analyst has said that shareholders may be disappointed to see Coty walk away rather than push for a transaction. Shareholders are hoping that Avon’s Chief Executive Officer Sheri McCoy can spark a turnaround at the beauty company, which has been struggling with plummeting profits on falling sales in the U.S. and in some international markets.

According to BMO Capital Markets analyst Connie Maneaty, Coty’s bid provided a floor under Avon’s stock, and the withdrawal of the bid will push it to its fundamental level. Avon’s stock dropped to $17.95 before the bell on Tuesday, which is below where it was trading before Coty’s initial $10 billion bid was made public in April.

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