What Does The Avon-Natura Merger Deal Mean For Investors In Avon?

Avon Products (NYSE:AVP) entered into a merger agreement with Natura Cosmeticos to form the world’s largest direct-selling company. Avon disclosed details of the merger late last week, clarifying the financial aspects of the proposed deal. Below we take a quick look at the salient points of the merger agreement and you can view our interactive dashboard on Avon & Natura: What’s The Deal? to modify Natura’s share price and Brazilian Real-U.S. Dollar exchange rate to understand prospective gains for Avon’s shareholders from the deal. Additionally, you can view our previous article on Avon’s global operations to know more about Avon’s performance across various geographies.

Deal Time Line

• On 22^nd March 2019, Avon Products confirmed that it was in preliminary discussions with Natura Cosmeticos about a potential transaction.
• On 22^nd May 2019, Natura announced that it will be acquiring Avon in an all-stock deal.
• Both parties have agreed to complete the merger by 22 July 2020, failing which the merger agreement could be terminated by either party.

Salient Points of the Deal

• Avon’s common shareholders shall receive 0.30 shares (ADS) of the combined entity Natura Holding S.A. for each Avon share outstanding.
• Natura shareholders shall receive 1.0 share of the combined entity Natura Holding S.A. for each Natura share outstanding.
• The founding shareholders of Natura will perform the required duties to further the deal. These shareholders hold 50.5% of Natura’s voting capital stock.
• Avon may have to pay $78.6 million in to Natura if it breaches any of the deal’s covenants.
• Natura may have to $133 million to Avon if the deal falls through despite getting all necessary approvals.

Potential Upside To Avon Shareholders

• As this is an all-stock deal, the upside to Avon shareholders is dependent on Natura’s share price and the exchange rate at the time of deal closure.
• Under the scenario that Natura’s share price is BRL 62 at the time of deal closure, and the USD-BRL exchange rate is 0.25 at that time, this represents an effective share price of almost $4.50 for Avon – an upside of 15% without the impact of any deal-related synergies.

You can input your own assumptions in our interactive dashboard to see how changes to Natura’s share price and the USD-BRL exchange rate impacts the upside to Avon investors. Also, we will help simplify the impact of deal-related synergies on the valuation of the combined entity in subsequent articles.

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