Avon Products, Inc. (NYSE:AVP) is in advance negotiations to sell its North American Business unit with Cerberus Capital Management as part of its strategy to turnaround toward profitability, according to a report from the Wall Street Journal.
The stock price of the struggling cosmetics company surged more than 7% to $3.99 per share today. The stock climbed further by 2.51% to $4.09 per share during the extended trading driven by the report.
Yesterday, the shares of Avon Products gained on speculations that Oprah Winfrey is investing in the company, which was denied by the media mogul’s spokesperson.
Still, Avon Products lost more than 57% of stock value year-to-date. The cosmetics company has been struggling for years because its door-to-door business model became less effective and its sales were recently hurt by the strength of the dollar particularly in emerging markets.
Cerberus Capital to make minority investment in Avon
People familiar with the negotiations told the Wall Street Journal that Cerberus Capital will make a minority investment in Avon Products at part of the deal, which would strengthen the balance sheet of the cosmetics company.
According to the people, Cerberus Capital will become the largest shareholder of the Avon Products. The private equity firm will also obtain a seat on Board of the cosmetics company.
The people warned that a transaction between the cosmetics company and the private equity firm may not materialize citing the fact that the discussions are fluid. If the parties reach an agreement, an announcement is expected to this month.
An activist group acquires 3% stake in Avon Products
The report also indicated that a group of activist investors including Barington Capital and NuOrion Partners acquired approximately 3% stake in Avon Products.
The group of activist investors is planning to launch a public campaign next week to oppose a deal at current prices. However, they believed that a transaction with a fair price combined with management changes should be beneficial for shareholders. They also believed that the company can still fix its operations and it does need cash from a private equity firm.