Avon Products, Inc.

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Avon Products, Inc.

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De La Salle University

Ramon V. del Rosario College of Business

Financial Management FNC535M

RCBC Plaza Room 520

Avon Products Inc.

Case Analysis & Corporate Strategy

Group no.4 Report

Member’s Name

“Role” in the Group

College Degree

Animoza, Wabel

Contributor / Researcher

Bach. of Mass Communication

Guerrero, Crescencio Jr.

Contributor / Researcher

BS Accountancy

Quizon, Lira

Contributor / Researcher

BS Accountancy

Dean Atty. Joe-Santos Balagtas Bisquera

MBA Professor


EXECUTIVE SUMMARY

Avon Products, Inc. (Avon or the Company) is a United States (US) based manufacturer and marketer of beauty products.  The Company is engaged in the beauty product direct-selling business, in which a sales force of independent sales representatives generates most of its revenues.  Under its Beauty Group, Avon sold cosmetics, fragrances, toiletries, and fashion jewelry, gift and decorative products.  In the early 1980s, Avon decided to invest in the healthcare industry by acquiring Foster Medical Supply, Mediplex Group and Retirement Inns of America, companies that provide healthcare services and retirement living facilities.

Sometime in 1980’s, Avon’s cash flow has been weakened as more women are leaving their homes, where most sales take place, to take on office jobs.  Moreover, its acquisition of Mallinckrodt, a specialty chemical company that sells to health care industry, added to its tight cash position.  To respond to this, the Company was forced to reduce its dividend payout in 1982.  

By 1987, Avon’s management have concluded that its investments in the health care industry is no longer grows and earns at an attractive rate.  With this, the Company decided to divest from the health care business and instead increased its commitment to its beauty products line.  In the same year, it acquired Giorgio, Inc. to add prestige fragrance sold through retail stores to its business line.

As part of reorganizing its business, Avon Chairman and CEO Hicks B. Waldron, thought of reconsidering the Company’s financial policies, including the its dividend policy.  In line with the Company’s strengthening of its beauty product business, management deemed it necessary to conserve its cash flows to fund its planned growth and expansion.  Reduction of dividend is the best option; however, the management is hesitant due to its possible effect on the stock price.  To lessen the impact on the stock price, the management is evaluating the possibility of implementing an Exchange Offer wherein cumulative preferred shares will be issued for certain portion of outstanding common shares.  Since most of the large and institutional shareholders of the Company look forward to high dividend payments, the management is in the process of evaluating the fairness of the Exchange Offer to all shareholders of the Company.