Brazilian cosmetics firm Natura&Co said it will support a financial restructuring by its Avon Products Inc arm after the subsidiary filed for Chapter 11 bankruptcy protection to address “debt and legacy liabilities.”
Natura, Avon’s largest creditor, will provide the business with a $43 million debtor-in-possession financing. It will also make a $125 million offer to acquire Avon’s operations outside the US by using its credits against the firm, it said in a securities filing.
While no debt number was disclosed, Natura CEO Fabio Barbosa acknowledged during the company’s second quarter earnings report the “still challenging figures from Avon International.” Natura posted losses of BRL859 million ($156 million) during the quarter, a 17% increase from a year earlier.
“We trust the Avon brand a lot, which is why we are putting aside an amount to purchase [its] operational assets outside the US,” CFO Guilherme Castellan told investors during a conference call.
STRATEGY SETBACK
Natura acquired Avon in 2020 as part of its internationalization strategy, which has backfired in recent years due to mounting debt. In February, it said it could spin off the firm but the move has been placed on hold until the Chapter 11 process is complete, the company said.
The cosmetics maker denied the latest Avon move represents a setback in its strategy and described it as another step towards Natura’s business simplification. Natura sold its Aesop and The Body Shop divisions last year, having acquired the businesses in 2016 and 2017 respectively.
“Although the Chapter 11 process adds complexity to Natura’s case, it should eventually simplify its structure,” BTG Pactual analysts said in a report, who said “the recovery pace remains uncertain.”
Natura’s shares fell 8.9% to BRL14.9 at the close of trading on São Paulo’s B3 stock exchange.