Avon decided not to sell assets in Russia

The international cosmetics concern Avon, which announced more than a year and a half ago that it would cease investing in Russia, has so far decided not to leave the country. According to Kommersant, there were even real contenders for the manufacturer’s assets, including Natura Siberica and Arnest Group of Companies, which previously bought out the Russian division of Heineken. Experts explain their interest by the uniqueness of Avon’s facilities in the Russian Federation. Market participants attribute the company’s refusal to sell to a reluctance to cede a stable business at a “substantial discount.”

Two market sources told Kommersant that the US-based Avon concern, owned since 2020 by the Brazilian Natura & Co, has refused to sell its business in the Russian Federation. In the spring of 2022, after the outbreak of the Russian-Ukrainian military conflict, Avon announced that it was suspending investments in Russian business.

There was no official talk about the company’s complete departure from the country. But in April 2023, the concern began preparations for the sale of its only enterprise in the country in Naro-Fominsk near Moscow, which is on the balance sheet of Avon Beauty Products Company LLC, the management structure of Avon in the Russian Federation, Kommersant sources say. According to them, it was planned to transfer the rights to the Avon brand, but written in Cyrillic, to the buyer. Negotiations began with a pool of investors, including Natura Siberica and Alexey Sagal’s Arnest Group of Companies, which bought Heineken’s assets in August 2023.

In November, according to Kommersant sources, the bidders sent a “binding offer to purchase” to Avon, but Natura & Co stated that it had decided not to sell the assets and leave the business in Russia. Natura Siberica and Arnest Group declined to comment. Avon did not respond to Kommersant’s request.

Around the world, the Avon concern, like its direct competitor in the international market – Amwaw, does not have its own distribution and retail, selling products directly from enterprises, mainly in small wholesale. For consumers in the Russian Federation, the company’s products are distinguished by a relatively low price with stable quality, so in the country, out of 6 million people involved in direct sales, 1 million are Avon, says President of the Direct Sales Association Tamara Shokareva.

According to a Kommersant source in the market, the Avon plant in Naro-Fominsk has modern equipment and is unique in that in addition to cosmetics, it can produce perfume products. Moreover, it is easier to accommodate contract production at the facilities for companies launching new brands.

It is this and the established direct sales system that aroused the interest of potential buyers in Avon’s business, says Kommersant’s interlocutor familiar with the progress of the negotiations. He explains the company’s refusal to sell assets in Russia by the fact that the government commission on foreign investments now requires foreign companies leaving the country to sell assets at a discount of up to 50%.

According to another Kommersant source, Natura & Co estimated the value of Avon’s business in the Russian Federation at least twice the annual revenue, that is, approximately 28 billion rubles. Although the brand is owned by a company from Brazil, which the Russian authorities consider a “friendly” country, it would still have to approve the deal in the government commission, since Avon Netherlands Holdings II is listed as the beneficiary of the Russian division.

For the Russian authorities, according to their public statements, it is desirable for foreign companies to fully continue their work in the country. Therefore, they can support Avon’s position to remain in the market, Andrey Toryannikov, partner of the law firm atLegal, does not rule out. But Infoline-Analytics CEO Mikhail Burmistrov doubts that the company will resume significant marketing activity in the short term.

Yakovlev and Partners lawyer Bronislav Sadikov does not rule out that after Avon’s refusal, potential buyers may try to recover damages if they incurred expenses during the negotiations. If Avon did not even sign any of the proposals received, then it cannot be considered bound by such a proposal, says Anton Samokhvalov, partner at AB KIAP. According to him, in theory, those who did not acquire assets could try to recover damages caused by bad faith negotiations, but, as practice shows, this is difficult to prove in the courts.

Khalil Aminov, Alina Savitskaya, Anatoly Kostyrev