#$avp

[thedealnewsroom]

Avon deal sets stage for 2016 board fight

The firm will inject $435 million in capital into the parent while taking the cosmetics company's North American division private for $170 million.

by Richard Collings

Avon Products Inc., in need of more capital to turn around the ailing company, has agreed to sell an 80% stake in its North American operations to Cerberus Capital Management LP and receive a capital injection in a deal valued at $605 million, the two parties announced on Thursday, Dec. 17.

The parties anticipated the deal would close in spring 2016.

The New York direct seller of beauty products will sell its North American division for $170 million to the private equity firm and will receive a cash injection of $435 million.

In exchange for the cash, Cerberus will receive convertible perpetual preferred stock in the parent, with a conversion price of $5 per share. The preferred stock will have a 5% annual dividend attached that either will accrue or can be paid by Avon.

If the stock were converted to shares, it would equate to a 16.6% stake in the direct seller.

The North American division, once taken private, also will assume $230 million in Avon liabilities, which Avon partially will offset through a contribution of $100 million in cash. Avon's North American unit includes the U.S., Canada and Puerto Rico and will license the name from the parent, paying a royalty fee.

To bolster cash, Avon will suspend its dividend, according to the announcement, beginning in the first quarter.

The deal's aim is to help Avon focus on its more profitable international operations, which constitute 86% of revenue, CEO Sheri McCoy said in the statement.

"The capital infusion from Cerberus, alongside the suspension of the dividend and additional operating efficiencies, provide us the needed financial flexibility to implement operational and capital plans that fully support the international business," she said.

The seller said it plans to take a pretax loss of $325 million to $435 million as a result of the deal.

Despite the deal, a group of investors led by activist shareholder Barington Capital Group's Jim Mitarotonda still appears intent on launching a proxy contest next year to install dissident directors on Avon's board. Mitarotonda said in a statement Thursday that the Cerberus deal represented a "fire sale" price and that he is still "astonished" to see McCoy remains as CEO. 

He added that Barington intended to "explore all available options," a comment suggesting the fund continues to contemplate a proxy contest in light of the Cerberus deal. Mitarotonda is no stranger to proxy fights. According to FactSet Research Systems Inc., Barington has initiated 22 director election battles and written 30 public letters to corporate executives and boards since forming his fund in 1997.

Barington's group, which owns a 3% Avon stake, has been publicly seeking to push out McCoy since earlier this month. In a letter earlier this month, Mitarotonda said McCoy lacks the skills required to lead a turnaround and that the company's earnings per share have dropped substantially during her tenure.

Nevertheless, Mitarotonda added Thursday that he was pleased to see that six existing board members have agreed to step down.

Avon said it will reduce the number of directors from 12 to 11, with current board members Douglas Conant, Paula Stern, V. Ann Hailey, Maria Elena Lagomasino, Sara Mathew and Gary Rodkin stepping down.

Cerberus executives Michael Sanford, Chan Galbato and Steven Mayer will join the board, with Galbato becoming chairman. W. Don Cornwell, meanwhile, will take a seat as an independent director. Two more members will be selected in the future by Avon and Cerberus.

Barington would need to officially launch its proxy fight by mid-March in time for an annual meeting expected in May or June, according to the company's bylaws.

Timothy Ingrassia, Kathy Michaels, Andre Kelleners and Zach Eckler of Goldman, Sachs & Co. and Blair Effron and Richard Case of Centerview Partners LLC provided financial advice to Avon, while Jonathan L. Davis, Scott A. Barshay, Andrew J. Pitts, David J. Kappos, J. Leonard Teti II and Eric W. Hilfers of Cravath, Swaine & Moore LLP provided the company with legal advice.

Doug Ryder of Kirkland & Ellis LLP provided legal advice to Cerberus.

-- Ronald Orol contributed to this article

[jamielissettehammerstone]

Equities end the day mixed...

...as the S&P 500 snapped its 4-day winning streak, led by weakness in Materials, Telecom, and Staples as earnings/guidance disappointments continue to pile up, while the Tech heavy NASDAQ managed a small gain (Tech & Utilities rise). Among the weaker performers today: Transports fall after UPS warns Q4 and year EPS growth will be below prior guidance/estimates, while rails dip on KSU missed revs; Consumer Staples down as KMB miss/lower guidance; Trust banks STT/BK fall post earnings; mortgage service names continue to fall (more concerns on HLSS/OCN today).

HammerstoneReport Closing ReCap -1/23/15

[dannathan]

Thursday’s Notable Options Activity

Here is some untied, generally directional options activity that caught my eye during Thursdays trading:

1. TLT -shortly after the open, when the Treasury Bond etf was 132.51, a trader bought what is called a call tree, buying 4800 March 133 calls for 2.95, selling 4800 March 137 calls at 1.60 and Selling 4800 March 141 calls at .90 all to open, paying .45 for the package.  So how does this trade make money? If the etf is above 133.45 and between 141, the trader can make the difference between the long call strike, plus the premium paid (45 cents) and the first short strike (137),which would be $3.55. Between 137 and 141 the trader has no additional gains of losses, but the profit would trail off between 141 and 144.55 (the second short strike and the gains from the long call, above 144.55 the trade would be a loser. Think of this as a slightly less confident 1×2 where the trader wants a little more room to the upside in case the etf spikes more than they thought.

A week ago we put on a short biased TLT trade looking out to March expiration: New Trade – $TLT: No Mr. Bond, I Expect You To Die

2. AVP – has been in a death spiral with no shortage of put buying over the last few months as the stock approached 20 year lows, with investors seemingly bracing for much lower lows. The stock was up 15% yesterday on rumors that a private equity firm is going to take a stake in the beleaguered beauty products company. Options volume was 5x avg daily,with 80% of the volume in puts, one trader rolled up a large block of Apr 7 puts, selling 32,000 at .43 to close and bought 32,000 Apr 9 puts for .80 to open when the stock was 8.50

3. WMB – saw some call buying, trading 4x average daily, when stock was 43.15 a trader paid .83 for 20,000 Feb 45 calls to open.  The stock recently bounced off of important 1yr technical at $40, but still down 26% from the 52 week highs near $60.

4. X – when the stock was $21.85 there was a closing seller of 6900 March 30 calls at .12, followed by an opening buy of 15,000 February 24 calls for .58 to open.  This could have been a roll down by the same investor, but it really doesn’t matter. The stock’s ytd decline of 17%, and the 50% drop from the 52 week highs in Sept tell the whole story. There are those who will give up on existing long biased trades, and those new to the story who will see a massively oversold stock.  We had some further thoughts on the stock yesterday: Name That Trade $X: US STEAL?

I discussed this call buying last night on CNBC’s Fast Money:

5. C - U.S. Banks finally caught a bid, C saw opening call buying, and total options volume ran 2x average daily. When stock was 49 a trader paid .41 for 5,000 June 57.50 calls to open, break-even at 58, up 18% on June expiration, that is above the 5 year highs made in December at $57

6. EEM – optionms volume was massive yesterday in the emerging markets etd, trading 1.5x average daily (500,000 contracts to the the average 200,000).  EEM saw a good size bearish trade out in April, when the etf was 40.76 a trader paid .50 for 30,000 April 38.50 / 34.50 Put Spreads to open

7. LL - saw a good size bearish roll when the stock was 56.51, a trader sold to close 15,000 Feb 60 puts at 7.50 to close and bought 15,000 March 60 puts for 10.30 to open. The company has not set its reporting date, but Bloomberg estimates Feb 19th.   LL is down 14.5% so far in 2015, but still up 13% or so from the 52 week lows made in Sept 2014 just below $50. The stock had a massive day, closing up 7.5%, I suppose the 22% short interest doesn’t hurt on rally days like yesterday.

8. AAL – trading at new all time highs...appeared to be some profit taking, 5,000 Feb 52.50 calls were sold at 4.05 when stock was 54.70 to close and 4,000 Feb 55 calls sold to close at 2.525

9. GE – saw what looked like closing put volume when stock was 24.08 a trader pays .31 for 16,000 Jan 23rd weekly puts to close,there is 38,000 open interest, the company reports Friday before the open

10. MCP - crazy trade in stock trading for dimes. MCP sees a buy of 25,000 June 50 cent puts,paying 26 cents to open, they break-even at 24 cents on June expiration (stock trading .45).There was also opening selling of the Sept 1 calls, at 5 cents open, 8000x

Related Posts:

New Trade – $UAL: Priority Check In (1)

Wednesday’s Notable Options Activity: $AAPL, $EWG, $EBAY, $MAT, $MSFT, $XLK, $YHOO(1)

Name That Trade – $UAL: Plane Geometry (1)

This post by Dan Nathan (@riskreversal) originally appeared on RiskReversal.com

[dannathan]

Wednesday’s Notable Options Activity: Spy-tastic!

Here is some untied, generally directional options activity that caught my eye during Tuesday’s trading:

1. SPY - somebody got their “daytrade” on in front of the Fed Minutes. Earlier in the morning when the SPY was $201.56, a trader paid .23 for 75,000 Feb 215 calls to open, that’s $1.725 million in premium for a break-even up 6.7% in a month and a half.  And just before 3pm, almost an hour after the Minutes were released when the SPY was $201.95, 21,500 of the Feb 215 calls were sold at .26, netting a .03 profit, or about $65,000 before commissions on just that block.

2. OIH - saw a large bearish roll, when the oil service etf was $34.05 a trader sold 20,000 Feb 34 puts at 1.825 to close and bought 30,000 of the April 30 puts for 1.25 to open.  What’s interesting about the OIH is that 2 stocks, SLB & HAL make up 31% of the weight.

3. PEP - saw a bullish roll earlier when the stock was $95, a trader sold 2500 Jan 95 calls at 1.05 to close, sold 3,000 Jan 100 calls at .06 to close and bought 5,000 Feb 100 calls for .65 to open. The company has not set their Q4 report date, but it is expected to be in mid Feb prior to Feb expiration

4. AMD - saw a large bearish put purchase, when stock was $2.56 a trader paid .35 for 100,000 of the July 2.50 puts to open. Break-even is at 2.15, below the 52 week low made on December 12th of 2.35. The stock’s low in 2009 was about $1.90, and again in 2012. AMD’s market cap is $2 billion with $2.2 billion in debt and $938 million in cash with trailing 12 month sales of about $5.5 billion.

5. SC – Santander Consumer is a Texas based lender (I had to look it up). When the stock was 19.50 there was a large bullish roll where a trader sold 28,-000 Jan 20 calls at .25 to close and bought 28,000 Feb 20 calls for 1.10 to open

6. AVP - as the stock traded near 20 year lows there was a large bearish roll. When the stock was 8.49 a trader sold to close 11,800 April 9 puts at 1.25 to close and bought 30,000 April 7 puts for .50 to open. Later in the afternoon there was some contrary action to the prior trade, when the stock was 8.44 a trader paid .45 for 25,000 April 10 calls to open. Possibly the same trader legging into a strangle.

7. INTC - when the stock was 35.65, a trader bought the July 28/33 1×2 put spread 12,500 by 25,000 for .53 to open. This trade breaks-even on the downside at 32.47, with max profits of 4.47 at 28, down about 22%. A level the stock has not traded at since last June.  This could be an outright bearish bet or possibly a creative way to add some protection to a long holding with the idea of closing one of the short puts as decay becomes more of an issue closer to expiration.

8. FOXA - saw heavy call volume on the day,despite the stock’s 4% decline, and nearly 9% decline so far in 2015. When the stock was 35.32 a trader paid .75 for 8,000 of the Feb 37 calls to open, total call volume ran 5x average daily.

9. MU - shares closed down 2.5%, below the 7.5% one day implied move following forward revenue guidance that disappointed the street.  Total options volume ran 2.5x average daily volume.  The two largest blocks on the day were call sales, the first being a sale of 11,400 of the Jan 33 calls at .40 when the stock was 32.16 shortly after the opening and then around 2pm a sale of 10,000 Jan 33 calls at .58 to close.

10. GLD - there was a bearish roll from Feb expiration out to April that made one options broker very happy.  When the etf was $116.44., a trader sold the Feb 110/100/90 put butterfly 4,800 by 9,600 by 4,800 at .58 to close and bought the April 110/100/90 put butterfly in the same size for $1.03.  The April trade breaks-even on the downside at $108.97, with a max gain of $8.97 at $100, with profits trailing off to $91.03.  Losses of up to 1.03 between 90 and 91.03 & between 108.97 and 110 with the max loss of 1.03 below 90 and above 110.  In the April put butterfly the trader is risking $494,000 in premium to possibly make up to $4.3 million if the stock is at $100 on April expiration.

This post by Dan Nathan (@riskreversal) originally appeared on RiskReversal.com

[dannathan]

Friday’s Notable Options Activity

Last week was the first week since June 2013 that the S&P 500 index moved more than 0.5% in either direction on every single day.  5 day realized volatility (in orange below) is nearing 20, and 10 day realized volatility (in white below) is nearing 15, still well below the highs of the past 2 years:

SPX 5 day realized volatility (orange) and 10 day realized volatility (white), courtesy of Bloomberg

10 day realized volatility has hardly been above 20, and 5 day realized volatility has hardly been above 25 in that period.

With the recent pickup in volatility, SPY puts and VIX calls dominated options volumes last week.

1.  SPY – Puts traded over 2 million for the second straight day (vs. the 1 month average of 1.47 million).  The Sept30th 196 puts traded over 130k, and the Oct3rd 196 puts traded over 90k.  $196.27 is last week’s low, and the more important support level is $190, near the rising 200 day moving average.

2.  VIX – Calls traded about 1.5x the 1 month average.  The Oct 20 call line was the most active, trading around 90k.  It also traded around 90k last Wednesday.  VIX spot has not touched 20 since early February.

3.  HYG – The high yield bond ETF touched a 52 week low intraday on Friday.  Some traders attributed the weakness to PIMCO selling high yield credit to raise cash ahead of anticipated outflows due to Bill Gross’ departure.  The Oct18th 92 puts were most active, trading over 20k at an average price of 1.03, mostly buyer initiated in the morning.

4.  JNS – Janus Capital rose to near a 5 year high, up 43% in a single session, after news that Bill Gross was joining the firm.  Buyer of 10k of the Oct 15/14 put spread for 0.275 near the close.  JNS closed just below its 5 year high of $16.06.

5.  JCP – JCP closed below the $10 level for the first time since the stock broke out on August 19th.  Nonetheless, calls dominated volumes.  Buyer of 12,300 of the Oct10th 10 calls for 0.26 in the afternoon.  The Oct18th 10 calls also traded over 10k on the day.  JCP is still up 8% year-to-date.

6.  AVP – Avon hit a new 10 year low on Friday, accompanied by a flurry of put buying.  The most active line was the Nov 12 put, where a buyer paid an average price of 0.48 for around 13k in the morning.

This post by Enis Taner (@enistaner) originally appeared on RiskReversal.com

[dannathan]

Yesterday's Unusual Options Activity: Facebook, Fox, Boeing

The market is on track for one of its lowest volume weeks outside of a holiday-shortened  week in the past few years.  Options volume yesterday was relatively light as well.  (this post originally appeared on RiskReversal.com)

1.  FB - FB hit a new all-time high, and options traded 3 times their average daily volume.  The weekly 76 calls and weekly 75 calls were the most active lines.  Outside of the weekly calls, the Aug16th 75 calls and Aug16th 75 puts both traded over 20k on the session.  FB’s intraday high was $76.74, and the spot to watch on the downside is its March high of $72.59.

2.  IP - Buyer of 21k of the Jan15 52.5 calls for 1.24 in the morning.  Bloomberg obtained a July letter from the hedge fund Perry Capital which indicated that paper and packaging companies like IP, RKT, and KS should be MLP-eligible, which would be a huge boost for tax savings for investors in those companies.  The options buyer made the purchase in the morning before the stock really got going (IP closed up 5.5%), and the Jan15 52.5 call line closed at $2.10.  IP closed at its highest level since the year 2000.  The stock’s all-time high is $60 from July 1997.

3.  FOXA - Buyer of 30k of the Jan16 25 puts for 1.275.  FOXA is trading near a 2 month low after the announcement of its pursuit of TWX.  The stock last traded below $25 in February 2013.

4.  AVP - AVP hit a new multi-year low yesterday.  Nonetheless, there was a buyer of 25k of the Aug16th 14.5 calls for 0.25 in the afternoon.  The company reports earnings before the open on July 31.

5.  BA - Buyer pays 3.375 for 6,600 of the Jan15 115 puts, as BA hit a 3 month low yesterday on big volume.  BA last traded below $115 on its breakout to a new all-time high in the fall of 2013.  The stock is down 9% year-to-date.