Avon Products Inc. (AVP: 29.19 +0.77 +2.71%), the world’s largest direct seller of beauty products, has announced the acquisition of Lenexa, Kansas-based company Silpada, the world’s largest and fastest-growing sterling silver jeweler. The initial payment for the deal is $650 million; the second payment is scheduled for early 2015 but depends on the achievement of certain earnings targets. The deal also transfers Silpada’s headquarters and warehouse facility in Lenexa to Avon.The deal, which is expected to be completed in the third quarter of 2010, will be funded by cash and commercial paper. The company had $1.12 billion in cash and cash equivalents as of March 31. Avon also confirmed that Silpada will continue to be managed independently as a stand-alone brand under the leadership of its co-founders, and will maintain its headquarters in Lenexa, Kansas. The company expects the acquisition to lift earnings by 3 to 5 cents per share in 2011.
Silpada sells its product in the United States, Canada and the United Kingdom through 32,000 independent sales representatives. Though it is being taken over, Silpada’s direct sellers will continue to operate under its current business model.
After a hiatus of more than 10 years, Silpada marks Avon’s third acquisition in 2010. In March, Avon bought Liz Earle, a primarily online seller of natural skincare products. The next month, it carried through a trademark purchase of baby care brand Tiny Tillia. Avon has been mulling an expansion of its jewelry business as part of its strategy to diversify to direct-to-home products beyond its traditional beauty business.
North American sales declined 2% in the first quarter, hurt by lower average orders and weakness in its non-beauty business. The acquisition deal suggest Avon’s one of the strategy to perk up U.S. business and deliver higher margins.
The acquisition will help add new products to Avon’s portfolio, boost margins and enhance market share. However, jewelry is a discretionary item and the current unstable economy with a highly restricted consumer spending may hinder Avon’s goal.
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