Avon Products AVP announced on Friday that independent chairman Fred Hassan would be stepping down immediately in light of ” his other professional commitments” (which presently include working as a managing director and partner at private-equity firm Warburg Pincus, as well as a director at Time Warner TWX and chairman of Bausch and Lomb) . Former Campbell Soup CPB CEO Doug Conant (a director since 2012) will assume the chairman post.
While Hassan has served on Avon’s board since 1999, he only assumed the role of chairman in January 2013, so the news is somewhat surprising. However, we had voiced concerns in the past that Avon operates with a very entrenched board–the average tenure of directors is around 10 years–which we believed could minimize the ability of these individuals to act independently. As a result, we view this change favorably. In addition, we like that the global direct-selling beauty care firm intends to maintain the separation of the chairman and CEO roles, as this creates another layer of oversight within the company.
Overall, we still think the firm has the right ingredients to deliver excess returns, supporting our narrow-moat rating: a respected (but bruised) brand, extensive geographic reach, and an underlying business model that appeals to entrepreneurial women. In addition, while we’ve been encouraged that the new management group doesn’t appear to be turning a blind eye to its extensive challenges and seems energized to pursuing any and all options to right its ship, we aren’t making any changes to our $15 fair value estimate and believe the shares are rich in light of Avon’s tenuous position.