Restructuring process involving assets in Europe, Asia, and Africa was halted

08/13/2024

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Avon’s innovation center in Cajamar, São Paulo: Natura plans to lend $43 million to this subsidiary during the reorganization process — Foto: Daniela Braun/Valor

Avon Products Inc. (API), a non-operating subsidiary of Natura and the Brazilian beauty brand’s holding company in the U.S., filed for protection from creditors under Chapter 11 in a Delaware court on Monday (12). The Brazilian group plans to make an offer for the brand’s operational assets, valued at $125 million, in the court-supervised reorganization process.

The company’s operational assets are under the umbrella of Avon, present in 37 countries in Europe, Asia, and Africa.

Natura plans to lend $43 million to this subsidiary during the reorganization process and use the claim to acquire the assets in the bidding process. Natura is API’s biggest creditor.

Natura announced plans to separate Avon International’s assets from its Latin American businesses earlier this year.

With the request for protection from creditors in the U.S. courts, strategic studies involving a possible separation of the assets from the international company and Natura will be halted until the company’s restructuring process is completed.

The idea was to list the company’s assets outside Latin America on the stock exchange and sell a stake or assets separately.

The acquisition of Avon by Natura, announced in May 2022, when assets were valued at around $2 billion, was another important step in the Brazilian group’s internationalization process. The deal was approved the following year.

In the acquisition process, carried out through the exchange of shares, Avon shareholders received 24% of the business—the remaining stake remained with the Brazilian group. API was de-listed and became a Natura&Co wholly owned subsidiary.

However, since the pandemic, Natura’s acquisitions abroad weighed on the company’s debt. Since then, the group has sold two important symbols of the company’s internationalization process—luxury brand Aesop was sold for $2.6 billion to French L’Oréal and The Body Shop was sold for £207 million to asset manager Aurelius—the amount is a fifth of the £1 billion paid for the asset.

The challenge was restructuring Avon International, present in 37 countries in Europe, Asia, and Africa.

With the sale of the two important assets outside Brazil, Natura plans to focus its efforts on operations in Latin America. The company sees synergy between Natura and Avon’s operations in the region.

Of Avon International’s group of 37 countries, only a few markets are relevant to this business division, including Eastern Europe, Africa, the Middle East, and Asia. Russia has become a sensitive point, especially with the war in Ukraine. In some regions, Avon will likely limit its presence to product distribution.

The sale of Aesop was key to reducing leverage, while with the divestment of The Body Shop, the goal was to streamline the group’s strategy—the brand had a small presence in Brazil but was very strong, especially in England, the U.S., and Australia—and was severely impacted by the COVID-19 pandemic, like retail operations in general.

Natura&Co’s restructuring process has been led by Fabio Barbosa, a former board member, who was invited by Natura’s three founders— Antônio Seabra, Guilherme Leal, and Pedro Passos—to restructure the company, heavily indebted in 2022 and facing poor results.

In the Brazilian market, Natura wants to boost Avon sales also in physical retail. The beauty company announced a partnership with retailer of beauty products Soneda to sell Avon items in the chain’s stores in the São Paulo state.

In 2023, Natura posted net earnings of R$2.9 billion, reversing a loss of R$2.8 billion in 2022, and ended the year with net cash of R$1.7 billion. The fourth quarter, however, saw R$2.7 billion loss. With the sale of Aesop, R$7.6 billion was allocated to paying debts, which were R$7.4 billion, in 2022. The company announced the payment of dividends of nearly R$1 billion.

*Por Ana Luiza de Carvalho, Mônica Scaramuzzo — São Paulo

Source: Valor International

https://valorinternational.globo.com/