Avon Products Inc., (IW 1000/124), which split off its North American operations earlier this month, plans to eliminate about 2,500 jobs and shift its headquarters to the U.K. in a cost-cutting move.
The shake-up will generate one-time expenses of about $60 million in the first quarter from severance and other costs, the New York-based cosmetics company said on March 14.
Avon expects to generate savings of as much as $70 million from the cuts by 2017.
The move follows Avon’s separation of its North American business on March 1, when Cerberus Capital Management LP acquired majority control of the division. The split left Avon with a focus overseas, where door-to-door cosmetics sales are more popular. Relocating its headquarters to the U.K. is part of an effort to reduce corporate infrastructure, said Avon, which already has “significant” commercial operations in the country.
“The actions we are taking today will bring our corporate and commercial businesses closer together, which will drive efficiencies, improve operational effectiveness and deliver significant cost savings,” said CEO Sheri McCoy.
Cerberus Deal
Moving its corporate offices offshore would complete a transition begun when Avon announced plans in December to break off its North American division. That business became a privately held entity this month, with Avon maintaining a 20% stake. As part of the deal, Cerberus invested $435 million in Avon and $170 million in the newly created North American company.
Though Avon is no longer targeting U.S. customers, the move overseas could generate political fodder during an election year. Johnson Controls Inc. has drawn flak for its deal to acquire Tyco International Inc. and shift its headquarters to Ireland. Candidates also have criticized Mondelez International Inc. for sending some Oreo production to Mexico.
Avon was founded in New York 130 years ago by David McConnell, a traveling book salesman who offered beauty products as a perk to female customers. The company flourished during an era when door-to-door sales were common, but that channel has waned, especially in the U.S.
Activist Criticism
Avon posted four straight years of declining sales and red ink, prompting it to pursue the Cerberus deal. The idea was to shed the troubled North American operations and concentrate on geographies with more potential.
“With the recent completion of the sale of the North American business, our commercial operations are now fully outside of the United States, allowing us to dramatically rethink our operating model,” McCoy said.
A group of activist investors, led by Barington Capital Group and including NuOrion Partners AG, welcomed Monday’s announcement while saying there is “still much more that needs to be done.” The group, which owns more than 3 percent of Avon, went public with its criticisms in December.
“We are pleased that Avon is following our recommendation to reduce excess costs and corporate overhead,” Barington CEO James A. Mitarotonda said in a statement. “We also continue to believe that Avon needs to add new independent directors that can help improve long-term value and ensure that shareholder interests are protected.”
