Private Investment Firm Takes 80 Percent Stake in Avon North America

This tie-up has been approved by Avon's board and the transaction is likely to complete in Spring 2016.

Avon Products Inc.'s stock soared 24% in premarket trade Thursday, after the beauty products company said it entered into agreements with Cerberus Capital Management that include a $605 million investment by Cerberus affiliates.

The private-equity firm will pay $170 million for the 80.1% stake in Avon's ailing North American business, which will be split off into a privately held entity. As part of the deal, Cerberus will take three seats on Avon's board of directors. Beyond that, there are already plans to better Representative incentives as well as for "simplifying go-to-market, order fulfillment and payment processes, and enhancing the customer experience", in the region, according to the statement.

"We are creating a strategic partnership that will improve Avon's performance and drive shareholder value", Avon Products CEO Sheri McCoy said in a statement.

"Importantly", she continues, "Cerberus has both the conviction and resources to support our Representatives".

Further, Avon said it intends to use $100 million of the proceeds to partially offset the transferred liabilities, about $250 million may be used to opportunistically reduce debt, and the remaining will be used along with the benefit of the dividend suspension for restructuring and reinvestment in the business.

The Wall Street Journal had reported that the firm was close to a deal with Avon, along with the deal's terms, just after midnight on Thursday. Avon is on track for its fourth straight year of sales declines, hurt in part by a consumer shift in North America.

Avon also said it would suspend its dividend, choosing instead to reinvest cash in its business.

Earlier this year, Avon was the target of a bogus takeover bid made by a firm calling itself PTG Capital Partners. Half the current members, including Chairman Douglas Conant, will step down. Among its most ardent demands is the ouster of McCoy, in whom the hedge fund says it has lost confidence.

Sales in North America have also fallen for more than three years as the company faces intense competition from online and big-box retailers as well as niche cosmetics makers offering more exclusive brands.