Avon Products To Receive $605 Mln Equity Investment By Cerberus Affiliates

(RTTNews) - Private equity firm Cerberus Capital Management LP will make a $605 million equity investment in beauty products maker Avon Products Inc. (AVP), the two companies said Thursday. Avon also said it will suspend its quarterly common stock dividend, with the suspension effective in the first quarter of 2016.

The equity investment by Cerberus Capital in Avon has two components. Cerberus will make a $435 million investment in Avon Products. This will be in the form of convertible perpetual preferred stock with a conversion price of $5.00 per share and a dividend that accrues, or is payable at Avon's option under certain circumstances in common shares or cash, at a rate of 5% per annum.

In addition, Avon North America will be separated from Avon Products into a privately-held company majority-owned and managed by Cerberus. Cerberus will purchase an 80.1 percent stake in Avon North America in exchange for a $170 million equity investment. The transaction is anticipated to be completed in the Spring of 2016.

The North America business will be separated into a privately-held company that includes the U.S., Canada, and Puerto Rico. At the close of the transaction, Avon will reduce the size of its board of directors from 12 to 11 members.

Avon North America will also assume about $230 million of long-term liabilities from Avon Products, which will be partially offset by a $100 million cash contribution from Avon.

Further, Avon said it intends to use $100 million of the proceeds to partially offset the transferred liabilities, about $250 million may be used to opportunistically reduce debt, and the remaining will be used along with the benefit of the dividend suspension for restructuring and reinvestment in the business.

Avon also anticipates underlying operational performance to be consistent with the full year 2015 outlook that it previously provided.

Avon expects to incur a pre-tax loss due to the sale of the North America business, in the range of $325 million to $425 million primarily due to the recognition of deferred historical losses on its pension and post-retirement benefit plans. A portion of the loss is expected to be recognized in the fourth quarter of 2015.