Coty Bid for Avon

This past spring, the European based cosmetics firm Coty announced an unsolicited offer for the struggling U.S. beauty supplies firm Avon Products, Inc. The negotiations between the two firms were short-lived as Avon ultimately refused to engage with Coty. The enclosed May 2012 New York Times article provides insight into why an agreement was not reached.

More data is available on Coty’s perspective since it was open with the media, while Avon’s actions are left more to speculation. The timeline is as follows:

• Coty opened the negotiations with an anchor bid of $10 billion, Avon promptly rejected it as too low and gave no counter offer

• Coty increased its offer to $10.7 billion, released information about its financing for the transaction and imposed a one week deadline for Avon to engage

• Avon requested additional time to analyze Coty’s offer at the final day, but provided no explanation for the delay which caused Coty to withdraw its bid

Coty was smart to open the negotiations with its $10 billon anchor given that it wanted to take advantage of Avon’s financial stress and set a low valuation. Avon’s immediate refusal of the anchor offer was also appropriate since it believed the $10 billion price to be too low. Avon’s lack of a counter offer forced Coty to devise a strategy to gain additional information about Avon’s interests.

Coty’s increased offer and decision to reveal its’ financing sources (who were credible in the financial community) possibly were intended to build trust in the negotiations. Coty may have been signaling that it wanted to shift the negotiations from a distributive discussion to an integrative one that considered Avon’s interests. Coty also imposed a deadline of one week on the offer which prevented Avon from using Coty’s bid to improve its BATNA by trying to attract other bidders.

Avon’s decision not to negotiate after Coty’s subsequent increased offer could be due to three possible reasons: Avon believes it had a...