What’s Lit a Fire Under Avon Shares?

It does not appear that Avon is about to fire its chief executive officer or that the dollar has weakened a lot on Thursday. That leaves only one choice in our view: a buyout.

Avon’s shares jumped 15% in late January following a report that private equity firm TPG Capital was in talks to acquire the company. Nothing came of the report, but it did pull the stock up from a year-to-date drop of around 20% to where it was down about 8.6% at Wednesday’s close.

In early 2012, Avon received an offer of $22.35 per share in cash from Coty Inc. (NYSE: COTY) before Coty became a publicly traded company. Avon’s board, which had recently fired former CEO Andrea Jung, called the offer “opportunistic” and rejected it.

Coty raised its offer to $24.75 on condition that Avon allow the prospective buyer to conduct due diligence. Avon refused and an offer worth north of $10 billion was taken off the table. At Wednesday’s closing price, Avon’s market cap was around $3.8 billion.

While it is pretty certain that Coty will not be interested in Avon again, TPG Capital may be, and there even could be other suitors who are bargain-hunting. But there is no way that Avon shareholders are going to see an offer of around $25 a share again. We would guess $10 — tops.

Avon’s shares traded at $9.16, up 6.8%, in the noon hour Thursday. The stock’s 52-week range is $7.25 to $15.80. That high is about to roll out of the range, while the low was posted in mid-January.

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