Cerberus taking a majority stake in Avon N. American unit

Cerberus will make a $435 million investment in convertible preferred Avon stock with a conversion price of $5 per share.

In the recent press release, Avon products revealed that both companies have signed definitive contract in order to drive enhanced focus on Avon’s global markets, to revive its North American business and to provide long-term value to its shareholders. This will give it roughly 80% ownership of the business.

According to the organization, out of total proceeds of $605 million, it will use $100 million to partially offset its transferred liabilities, almost $205 million to reduce its debt, while the rest will be used for restructuring and reinvestment in the business.

The transaction is slated to be completed in the spring of 2016.

Shares of Avon were up 10 percent, to $4.50, on the deal announced Thursday morning. But the group also warned against any sale of the North American business that was made on “unfavorable terms” to investors.

Avon also plans to suspend its dividend in concert with Thursday’s moves.

“We are strong believers in the direct-selling model, the principle of empowering representatives, and the growth that direct selling can generate when representatives are appropriately supported and incentivised to build their businesses”, said Cerberus senior managing director Steven Mayer.

Avon’s sales in North America accounted for just 14% of the company’s revenue in 2014.

The deal represents a big bet for Cerberus, which raised a fund for more than $2 billion in 2013 and reportedly planning to raise another $3 billion fund this year.

Avon, famed for selling beauty products door-to-door, has had its own callers this year, with activist investors including Barington Capital Group demanding a corporate shakeup.

“While we are pleased that six existing board members have agreed to step down, we are astonished that Sheri McCoy remains as CEO”, Mitarotonda said.

Three years ago, Avon turned down an $11 billion offer from rival Coty and brought in Ms. McCoy to turn the company around.

She added that the “partnership and structure will also accelerate profitable growth in the remaining Avon portfolio”.

Last month, Avon said it would broaden the role of its chief financial officer, James Scully, giving him the additional title of chief operating officer come January 1.