TPG buys Avon Japan for $90 million

Avon sells a controlling stake in its Japanese subsidiary to financial sponsor TPG Capital for $90 million as it struggles to make money in Japan.

Avon Products is selling its entire controlling stake in its Japanese business to an affiliate of private equity firm TPG Capital for ¥7.3 billion ($90 million).

Avon owns 74.67% of its Japan subsidiary with the rest of the shares owned by minority shareholders. Avon Japan is the only subsidiary of Avon Products which is publicly traded. Following the deal with Avon, TPG will launch a tender offer to Avon Japan's minority shareholders at ¥74 per share -- the same price TPG is paying Avon.

Avon Products earns over $10 billion in annual revenue and is the world's largest direct seller. It operates in more than 100 countries through approximately 6.2 million independent Avon sales representatives. Avon Japan represents less than 2% of Avon Product's total sales.

Avon said that the planned sale is consistent with its strategy to focus its portfolio and investments on direct selling markets with higher growth potential. In contrast to other Avon markets, Avon Japan generates more than half of its sales from direct mail, and a large portion of its sales come from products unique to Japan.

"While Japan is an important consumer market, our analysis indicates that we would need to commit significant additional investment in order to generate profitable growth in the near to intermediate term," said Andrea Jung, Avon's chairman and chief executive officer, in a written statement.

TPG Capital is buying the rights to local Japanese formulas and products and certain other formulas and products for use in Japan and, subject to certain restrictions, for use outside of Japan. Avon Products will also transfer to TPG Capital the ownership of certain local Japanese and other trademarks. In addition, TPG Capital will have rights to use the "Avon" name in Japan for a five-year period, and will also have licence rights to obtain certain existing global brands, formulas and products during that same period, Avon Products said in a New York Stock Exchange filing.

TPG Capital is a global buyout group of TPG, the private investment firm with approximately $47 billion of assets under management. TPG’s other investments in Japan include Tomy Company, a toy maker, and JCR Pharmaceuticals, a bio-generic medical supply maker.

In its third quarter earnings call, which is posted in transcript form on Seekingalpha, Avon mentioned that some of its Asia growth has been offset by continued weakness in Japan, leading to a slight decline in overall revenue for the quarter.

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