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May 10, 2012, 12:06 p.m. EDT
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By MarketWatch
NEW YORK (MarketWatch) "” Avon Products Inc. is in deep trouble. It's hard to tell which is worst: the shrinking sales; the year-long, 55% slide in stock price; the management upheaval; or the flat-lining profits.
Coty has added the firepower of Warren Buffett's Berkshire Hathaway to its bid for Avon and submitted a sweetened offer to bring the struggling beauty-products company to the table.
And yet Warren Buffett, the investor who finds value where others don't, sees something here "” in fact, he sees enough to add his name and Berkshire Hathaway Inc.'s /quotes/zigman/219651/quotes/nls/brk.a BRK.A +0.39% /quotes/zigman/583979/quotes/nls/brk.b BRK.B +0.61% cash to Coty Inc.'s $10.69 billion offer for Avon /quotes/zigman/218767/quotes/nls/avp AVP -3.84% . Read more about Buffett's joining Coty in its unsolicited offer for Avon .
It could be the brand name. Buffett has always had a weakness for great brands: Dairy Queen, See's Candies and Fruit of the Loom, to name a few owned outright by Berkshire. Coca-Cola Co. /quotes/zigman/222647/quotes/nls/ko KO +1.09% , Wells Fargo & Co. /quotes/zigman/239557/quotes/nls/wfc WFC +1.93% and IBM /quotes/zigman/230066/quotes/nls/ibm IBM -0.14% are among those Buffett holds stakes in.
It could be the value. Avon has $2.4 billion in long-term debt, about twice its cash holdings. Avon is trading at 5.7 times book value, but most of that premium has emerged in the few weeks since Coty made its offer.
Or it could be that Buffett agrees with Sherilyn McCoy, Avon's new chief executive, who has said Avon is "an iconic brand" with "so much clear potential." For all of its faults, Avon has expanded internationally and has had some profit growth during the past three years.
Investors might want to give McCoy a chance. Her experience building brands at Johnson & Johnson /quotes/zigman/230812/quotes/nls/jnj JNJ +0.48% may be worth taking a flier on.
Of course, by the time Buffett shows interest, it's usually too late for a company. That's the irony of a Berkshire bid. No one realizes the value of a brand until Buffett has all but snatched it away.
"” David Weidner
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