Avon to Sell Japan Unit to TPG - Analyst Blog

Leading beauty company Avon Products Inc. (AVP) announced the sale of its 74.67% stake in Avon Japan to a subsidiary of TPG Capital, a private investment firm. The deal has been finalized for a total cash payment of 7.3 billion yen, or approximately $90 million.

TPG Capital is also offering 74 yen per share to shareholders under the terms of the tender offer launched for the remaining 25.33% of Avon Japan. This happens to be the same price at which Avon agreed to sell its shares.

This move forms a part of Avon Products' strategy of exiting from low profit generating arenas and concentrating on high growth potential avenues.

Avon Japan, which was publicly traded on the JASDAQ market of the Osaka Securities Exchange, was unsuccessful in contributing much to the revenues of the parent company and accounted for less than 2% of the total company sales figure.

The transaction is subject to customary closing conditions and regulations and will likely be sealed in fourth quarter 2010. Effective from that quarter, the Japanese business segment will be reported as a discontinued operation in the financial statements of the parent company.

We remain optimistic about the company's various restructuring initiatives targeted toward cost controls and profitability enhancement.  The company is also looking forward to explore diverse growth opportunities, redesign worldwide manufacturing operations and improve organizational effectiveness.

However, sluggish North American market conditions, intense competition from other established players and exposure to adverse foreign currency translations challenge the company's future performance.

Considering these factors, we adhere to our long-term Neutral recommendation on the stock. Avon currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.