Avon plans to move headquarters to UK and cut 2,500 jobs

[NEW YORK] Avon Products Inc, which split off its North American operations earlier this month, plans to eliminate about 2,500 jobs and shift its headquarters to the UK in a cost-cutting move.

The shake-up will generate one-time expenses of about US$60 million in the first quarter from severance and other costs, the New York-based cosmetics company said in a statement Monday. Avon expects to generate savings of as much as US$70 million from the cuts by 2017.

The move follows Avon's separation of its North American business on March 1, when Cerberus Capital Management LP acquired majority control of the division. The split left Avon with a focus overseas, where door-to-door cosmetics sales are more popular. Relocating its headquarters to the UK is part of an effort to reduce corporate infrastructure, said Avon, which already has "significant" commercial operations in the country.

"The actions we are taking today will bring our corporate and commercial businesses closer together, which will drive efficiencies, improve operational effectiveness and deliver significant cost savings," chief executive officer Sheri McCoy said in Monday's statement.

Avon shares rose as much as 3.9 per cent in late trading after the announcement. The stock climbed 8.1 per cent this year through Monday's close.

Cerberus Deal

Moving its corporate offices offshore would complete a transition begun when Avon announced plans in December to break off its North American division. That business became a privately held entity this month, with Avon maintaining a 20 per cent stake. As part of the deal, Cerberus invested US$435 million in Avon and US$170 million in the newly created North American company.

Though Avon is no longer targeting US customers, the move overseas could generate political fodder during an election year. Johnson Controls Inc has drawn flak for its deal to acquire Tyco International Inc and shift its headquarters to Ireland. Candidates also have criticized Mondelez International Inc for sending some Oreo production to Mexico.

Avon was founded in New York 130 years ago by David McConnell, a traveling book salesman who offered beauty products as a perk to female customers. The company flourished during an era when door-to-door sales were common, but that channel has waned, especially in the US.

Avon posted four straight years of declining sales and red ink, prompting it to pursue the Cerberus deal. The idea was to shed the troubled North American operations and concentrate on geographies with more potential.

"With the recent completion of the sale of the North American business, our commercial operations are now fully outside of the United States, allowing us to dramatically rethink our operating model," Ms McCoy said.

BLOOMBERG