If Amway Corp. buys Avon Products, it will trade scents for dollars.
Amway, that is, will sell Avon's upscale fragrance subsidiaries--Giorgio Beverly Hills and Parfums Stern--if it succeeds in its $2.1-billion takeover bid for Avon. In a filing with the Securities and Exchange Commission, Amway disclosed Thursday that it would unload its retail units mainly to pay off some of the debt from the proposed deal.
For Giorgio and Parfums Stern, a sale would mark the second time they have changed hands in roughly two years. Long known for its "Avon Lady" direct sales force, Avon entered the department store market in 1987 when it bought Giorgio for $165 million and Parfums Stern for $160 million.
Based in Santa Monica
Giorgio's main fragrance, also known as Giorgio Beverly Hills, garnered sales of more than $100 million in 1988. It was the nation's top-selling fragrance offered exclusively in department stores. Avon in January introduced Red from Giorgio Beverly Hills and has predicted that the new product will produce $100 million in new sales. The Giorgio business, now based in Santa Monica, employs about 200 people.
The entire Avon retail division, including Giorgio and Parfums Stern but not the company's vast door-to-door sales operation, generated pretax earnings of $13.9 million on sales of $227 million in 1988.
The Giorgio fragrance was introduced in 1981 and has been associated with its namesake, a boutique on Beverly Hill's Rodeo Drive. That boutique--along with its original name, "Giorgio Beverly Hills"--initially was retained by former Giorgio owner Fred Hayman when he and co-owner Gale Hayman sold the product to Avon.
Under an agreement with Avon, however, Hayman relinquished the name this year. Avon, which owns a boutique called Giorgio Beverly Hills New York in New York City, plans to open a Beverly Hills store under the Giorgio name later this year.
Rejects Claims of Suit
New York-based Parfums Stern also employs 200. Parfums Stern's brands include Oscar de la Renta, Perry Ellis, Valentino and Uninhibited by Cher, which was introduced in November.
Avon had no immediate comment on the proposal to sell its retail group.
Amway's SEC filing also rejected claims raised in a lawsuit Avon filed last week that was intended to stop Amway from acquiring more Avon stock. The federal suit alleges that the Amway-Jacobs partnership violated securities laws by failing to inform government agencies of its interest in Avon. Amway's filing said the complaint was "without merit."
Ada, Mich.,-based Amway, which sells personal and household products door-to-door, proposed the $39-per-share buyout of Avon Wednesday, just one week after Amway and Minneapolis investor Irwin L. Jacobs disclosed that they had formed a partnership that acquired 10.3% of the New York-based cosmetics giant. Amway, however, is now making the buyout offer without Jacobs.
Avon Chairman James E. Preston last week rebuffed the initial overture, saying that the company was not for sale. He reaffirmed that stance in a letter to Amway Wednesday, but said Avon's board would meet its legal obligations to its shareholders by reviewing the buyout proposal.
Along with cutting its debt, Amway said it envisions divesting Giorgio and Parfums Stern because their products do not fit the strategic plans of Amway, which sells its products through an independent sales force and by catalogue.
"Amway wants to concentrate on the distribution business," said Roanne Kulakoff, an Amway spokeswoman.
Amway would retain Avon's national and international direct sales operations, according to the SEC document. Amway also said Jacobs may explore buying Giorgio and Parfums Stern if its takeover goes through.
Some industry analysts said there likely would be others interested in buying the businesses. Unilever PLC of Britain, Revlon Group and New Jersey-based Cosmair are among those that might be interested, said Bonita Austin, an analyst at Wertheim Schroder.
"Giorgio and Parfums Stern are both valuable properties, but Amway would be crazy to keep them because they have no expertise in this area," Austin said.
Andrew Shore, an analyst at Shearson Lehman Hutton, said the two subsidiaries together are worth about $250 million.
"Uninhibited by Cher is expected to do well," he said, "and Giorgio and Oscar de la Renta are great values."
The two subsidiaries have been key to Avon's business strategy, according to John Cox, an Avon spokesman.
"Part of our strategy is to become the world's leading provider of beauty and beauty-related products," he said. "To do that, you need to be in the retail market."
Avon's 1.4-million-member independent sales force sells cosmetics, fragrances and small gift items for the home. A number of writedowns for discontinued and divested operations in retirement homes and health services contributed to Avon's 1988 loss of $404.5 million on sales of $3.06 billion.
Amway's products include toiletries, cosmetics, soaps and home-care, health and fitness goods. A privately held company with 1 million independent distributors, it had sales of $1.8 billion in the fiscal year ended Aug. 31, 1988.