Avon Products Inc., fighting to head off a possible takeover bid, filed a federal lawsuit Wednesday seeking a court order preventing Amway Corp. and Minneapolis investor Irwin L. Jacobs from acquiring more Avon stock.
The lawsuit was the New York-based cosmetic firm's first reaction to a Securities and Exchange Commission filing by Jacobs and Amway, a direct seller of personal and home products. In the filing, Jacobs and Amway said they have acquired 10.3% of Avon's stock and formed an alliance called A/J Partnership. The statement said the partnership may seek some type of "business combination" with Avon, but no buyout bid was disclosed.
The suit, filed in U.S. District Court for the Southern District of New York, accuses Amway and Jacobs of violating disclosure requirements of federal securities laws in their acquisition of Avon stock. The suit says A/J Partnership violated the law when it failed to report that it had, on April 7, acquired more than $15 million in Avon stock.
No Comment From Amway
Under federal law, a company is required to inform the Federal Trade Commission and the U.S. Justice Department when it acquires more than $15 million of stock in a large company. Partnerships--organizations in which no one has more than 50% interest--are exempt from that reporting requirement, the suit acknowledges. However, Avon says A/J Partnership is not exempt, alleging that Jacobs controls 55% of the partnership.
The legal complaint describes Amway as a "controversial purveyor of a pyramidal direct marketing scheme" and as a company with a "checkered" history. Jacobs is a "well-known (corporate) raider who has not completed an acquisition for many years," the suit says.
The suit asks the court to prevent the partnership from purchasing additional Avon stock. It also asks the court to order the partnership to sell its Avon stake--worth about $150 million.
Amway, based in Ada, Mich., had no immediate comment because they had not seen the lawsuit, said Kim Bruyn, an Amway spokeswoman. Jacobs was not immediately available for comment.