TPG gets Avon Japan

As part of the transaction, TPG Capital is launching a tender offer in Japan for the remaining 25.33% minority stake, pricing at JPY74 ($0.9) a share, the same price that Avon has agreed on for its shares. The TOB transaction targets a delisting of Avon Japan from the JASDAQ board of the Osaka Stock Exchange, with an acquisition price that also includes fees for certain intellectual property licenses of the company. Avon Japan, first launched in Japan in 1968, is the only subsidiary in Avon’s portfolio of over 100 country presences that is publicly traded.

Avon said that the transaction would have no material impact on its financial statements, as Avon Japan represents less than 2% of its worldwide sales. The proposed transaction is subject to customary closing conditions and is targeted to close in the fourth quarter 2010.

Private equity practitioners in Japan cited the deal as a hopeful sign. One Japanese LP told AVCJ, “though there are not many large-scale buyout deals in Japan, this type of spin-off transaction will create deal flow in Japan’s PE industry.”

In its statement, Avon Japan explained that it had accepted the TOB proposal due to sluggish demand, leading to consecutive decline for six years from 2004. Moreover, the current economic climate’s impact on consumer spending has led to even more severe decline than anticipated, with forecasts for the company’s fiscal year ending December instancing a 10.7% shrinkage in sales against the previous year, to JPY17.5 billion ($210 million).

TPG said that it was contacted by Avon in August last year regarding a possible share transfer. After evaluating the opportunity, TPG decided that Avon Japan could likely achieve stable growth if it went through a drastic restructuring after delisted. It also said that Avon’s existing sales structure, with the Avon ladies who sell its products direct to consumers, is part of the essence of the business, and therefore TPG will support and further enhance that operation.

As part of the transaction, TPG has been granted rights to Avon’s local Japan formulas and products, and certain other licenses for use in Japan and, subject to certain restrictions, for use outside the country. Avon also has agreed to transfer to TPG Capital ownership of certain local Japan and other trademarks. In addition, for a period of time, TPG Capital will have rights to use the “Avon” name in Japan.

Avon Associates, the Avon sales ladies, are expected to continue in their roles in Japan, and the existing Avon Japan management team will continue to provide support during the transition. 

Further reading

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• Topics
• North Asia
• Consumer
• Buyouts
• TPG Capital