Why Avon's Shares Plunged

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of cosmetics giant Avon Products (NYS: AVP) were looking pretty unkempt today, falling as much as 13% in intraday trading after rival Coty pulled its proposed takeover offer.

So what: The price action in Avon's shares is a good reminder of just how dangerous it can be to speculate on buyout proposals or rumors. Although it seemed there was a very motivated buyer here in Coty -- the company even bumped up its offer price and brought in the financial might of Berkshire Hathaway (NYS: BRK.A) (NYS: BRK.B) last week -- the seller couldn't seem to get its act together.


When it delivered its sweetened offer, Coty gave Avon a deadline of Monday to enter into deal negotiations. Avon responded on Sunday that it would consider Coty's new offer and would respond within a week. Coty, apparently savvy enough to realize that a week from Sunday is well past the Monday deadline, pulled its offer.

Now what: We have a bit of a "he said, she said" here, with Coty sticking to its guns and simply pointing out that Avon didn't meet its deadline, while Avon is playing the befuddled part and claiming that it responded "promptly" (per a press release today).

The whole thing doesn't make Avon's management look like it's on top of its game. Perhaps Avon -- as management made it clear previously -- really does want to stay independent. But that would have been easily addressed by simply rejecting the offer or demanding an even sweeter price to kick off negotiations. As it is, the way Avon handled this situation should make shareholders want to shout, "Get it together, Avon!"

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At the time this article was published The Motley Fool owns shares of Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.Fool contributorMatt Koppenhefferowns shares of Berkshire Hathaway but has no financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting hisCAPS portfolio, or you can follow Matt on Twitter,@KoppTheFool, orFacebook. The Fool'sdisclosure policyprefers dividends over a sharp stick in the eye.

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