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April 6, 2012 4:02 PM

Business

Will Avon Have a Revlon Moment?

In deal parlance, the very public letter Coty chairman Bart Becht sent to Avon chief Andrea Jung earlier this week is called a "bear hug." That's because taking a $10 billion takeover offer directly to shareholders is a particularly uncomfortable...

In deal parlance, the very public letter Coty chairman Bart Becht sent to Avon chief Andrea Jung earlier this week is called a "bear hug." That's because taking a $10 billion takeover offer directly to shareholders is a particularly uncomfortable way for Coty to express its affection.

Avon's board -- which is fending off bribery investigations, looking for a replacement for Jung and struggling to turn around its business -- clearly didn't want this.

The direct merchant brushed off three letters of interest from Coty last month and accused the suitor of failing to make a "real offer" and trying to get a "free look" at its books.

The ball isn't so much back in Coty's court as it is up for grabs. The $10 billion figure is out there and if someone -- Coty, a private equity house, another strategic player -- wants Avon, it looks like they'll have to make a better offer.

All Avon can do is play defense, right up until they have their "Revlon Moment." That's when the legal precedent known as the "Revlon Rule" kicks in.

When it looks probable that a company will be sold, boards have a legal duty to get the best price for shareholders -- they become auctioneers. The rule was established in the Eighties when Revlon tried to thwart a takeover by investor Ronald Perelman by accepting a lower takeover from a would-be white knight.

Coty's Becht has said he doesn't want to pursue a "hostile" takeover, but for Avon the landscape is looking more and more unfriendly.

A higher offer could force the Avon board to begin a process that ends with the firm going to the highest bidder.

Given all the troubles at Avon, the question has become: Can bidders get comfortable enough with the state of the company to make a better offer? And then, once they do get a look at its books, will they still want to pay up?
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