Essay on Avon Products

4043 Words Mar 23rd, 2012 17 Pages
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IiItlEI

Harvard Business School

9-289-049
Rev. August 5.1994

Avon Products, Inc.
On June 1, 1988, Hicks B. Waldron, chairman and chief executive officer of Avon Products, Inc., was reviewing a package of proposals that he and his financial advisors were to present to the Avon board of directors for final approval the following day. These proposals included (1) a public announcement that Avon would explore plans to divest two of its businesses, probably at a considerable book loss; (2) a reduction of the dividend on Avon's common stock; and (3) an exchange offer under which Avon would issue an unusual preferred stock in exchange for up to 25% of its common shares.

Background
Avon Products, Inc., founded in 1886, was one
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Strapped for cash , the company reduced its dividend in August 1982 from $3.00 to $2.00 per share per year. Avon's stock price hardly moved when the company made the dividend announcement. but the Wall StreetJournal reported at the time that observers had expected the dividend reduction. In any event, Avon's stock price had dropped from $30 per share at the end of 1981 to $20.375 per share immediately before the dividend announcement. In 1984, having just become Avon's CEO, Mr. Waldron began to reshape the company's beauty operations. Instead of remaining primarily a direct sales company, he decided, Avon w ould broaden its approach to the beauty business by developing additional distribution channels. The company also continued to look for acquisitions in the health care area , so that Avon could remain viable in the event the changes it was making to its beauty business failed . In May 1984, Avon acquired Foster Medical Company in a share exchange. Foster Medical seemed a particularly attractive acquisition because of the possibility that public health care policy would change to encourage a shift from expensive, hospital-based care to the less expensive home care, which was a major part of Foster's business. Avon also acquired Retirement Inns of America in November 1985 and the Mediplex Group in April 1986. Mediplex operated sub-acute

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