Avon Should Pass on the Deal

 | Apr 02, 2012 | 1:05 PM EDT  | Comments
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You give Avon (AVP) a new CEO, you remove Andrea Jung from any sort of role at all, you take the tough actions that are so necessary after years of mismanagement and no takeover is needed to get some serious value creation here.

Of course I am reacting to the crass low-ball bid on the table from fragrance company Coty, one that simply gets this stock back to where it was a couple of quarters ago before the whole world knew what a wealth destroyer Andrea Jung is.

But I think the stock would have already been considerably higher than this $23.25 bid if the board of directors had taken the tough action that is so warranted and given Jung the boot instead of allowing her to hang on to her job until a successor is found.

By simply getting rid of her months ago and bringing in a new CEO from outside the culture, the stock would already be well above the current price and be able to, if it made sense, buy Cody and all of its powerful brands and not vice versa.

How terrible is Jung? A long time denizen of the Wall of Shame, Jung was removed when she was fired from the CEO job, which precipitated a bottom to the stock. That's how the Wall of Shame works. We only put those on who we know would cause an immediate jump to a stock if the person were removed.

The problem here is that as much as Jung may have been able to damage the franchise with what I guess were well-meaning actions -- although if you deliberately tried to destroy this institution I doubt you could have had the success she had -- there's still plenty to work with here because of the outsized China and Latin American businesses that outlasted Jung's reign.

That's why I think Avon should just say no and go about a more thorough Jung-less search for a new CEO.

I have only felt this way once before in the last decade, and that's when Airgas (ARG) said not to a low-ball bid from Air Products (APD) and then, under the tenure of CEO Peter McCausland, managed almost immediately to take the stock well above the offering price.

Avon would be wise also to stay the course and ignore Coty's intentions. There's too much value here without Jung to give up so easily.

So, two things have to happen here. One is that Coty should be told no thanks. And two, Jung should be booted from all jobs and a new CEO brought in from outside the organization to right the ship. Then, and only then, can Avon restore its luster and the growth that others in the industry, notably Herbalife and Tupperware, have enjoyed during Jung's simply abysmal tenure.

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