Avon has a signature Beyoncé brand. Photograph: Lucas Jackson/Reuters
The battle for control of the makeup company Avon has hotted up after Warren Buffett, one of the world's richest men, said he would help finance a new $10.7bn (£6.6bn) bid from the perfume maker Coty.
The fragrance firm behind Beyoncé and Lady Gaga's signature scents has been trying to engage Avon – best known for its "Ding Dong, Avon Calling" adverts of the 1950s and 1960s – in takeover talks for several weeks. But its initial $10bn approach was batted away by the board who argued it undervalued the 126-year-old company.
Coty has made its move on an Avon in crisis. Its new chief executive, the former Johnson & Johnson executive Sheri McCoy, only joined last month, replacing the high-profile Andrea Jung. She has inherited a bulging in-tray that includes finding a solution to three years of falling profits as well as the fallout from a bribery inquiry centred on its expansion into China and Latin America. Its credit rating was recently downgraded to two steps above junk by Standard & Poor's.
The revised offer of $24.75 a share, up from April's offer of $23.25, was set out in a letter to the Avon board from the Coty chairman, Bart Becht, which was made public on Thursday. Becht is best known for running the cleaning product firm Reckitt Benckiser and the bumper pay packages he received for his efforts, which included a £91m package in 2009. Reckitt and Coty are both investments of Germany's wealthy Reimann family.
In the letter Becht said Coty was "disappointed by the current stalemate" and urged the board to open the books. The equity financing for its bid would come in part from Buffett's Berkshire Hathaway, he said, closing the letter with the warning that the offer would be withdrawn on Monday if Avon did not cooperate.
Avon and the US securities and exchange commission are probing whether executives bribed foreign officials in violation of the Foreign Corrupt Practices Act. The investigation sparked Jung's resignation in December, ending a 12-year stint that had made her the longest-serving female executive at the top of a Fortune 500 company. Avon, which has maintained that a turnaround led by McCoy will deliver better value for shareholders than a tie-up with Coty, did not reject the new offer outright, stating it would respond "in due course."
Avon is nearly three times the size of Coty with annual sales of $11.3bn in 2011 and an army of 6.5 million door-to-door sellers in more than 100 countries. The opportunistic bid would give Coty, which had a turnover of $4.1bn last year, a new route to market for its many brands which include Rimmel and nail care brand Sally Hansen.
"I don't think they will [take up the offer]", said Michael Bigger, founder of trading firm Bigger Capital, which holds Avon shares. "They know that the current bid is too cheap. Cosmetics is a great business. It deserves a premium. If I were them I would ask for $28 or more."
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