Fitch: Potential acquisition by Coty is negative for Avon

Fitch Ratings said it views a potential acquisition of Avon Products, Inc. by Coty as credit negative. However, the agency noted that Avon's quick decline of Coty's $10 billion bid combined with Coty's stated desire to not initiate a hostile offer lessen the prospects of a takeover.

Avon has a BBB issuer default rating and a negative outlook.

Despite Avon's rejection, Coty has said it remains committed to buying the cosmetics company. Under the initial bid, the EBITDA multiple including Avon's $3.3 billion of gross debt would translate to 11.7 times for the past 12 months ended Dec. 31. Avon considered the bid low relative to recent comparable deals in the personal care space. Fitch believes it is probable that Avon's direct selling model and recent challenges were factored into the initial offer.

If an acquisition were to occur, the agency believes a credible and rapid deleveraging plan would be necessary. However, any potential deleveraging plan might be derailed by the work and expense needed to address operational and legal issues, Fitch said, and integrating the two businesses would likely place downward pressure on the potential rating of the combined companies.

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