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AVON GOES DOOR-TO-DOOR IN HEALTH CARE WITH FOSTER MEDICAL PURCHASE

Executive Summary

AVON GOES DOOR-TO-DOOR IN HEALTH CARE WITH FOSTER MEDICAL PURCHASE, according to a definitive merger agreement announced by both companies March 27. Under the proposed stock transaction, Foster shareholders will receive .745 shares of Avon common stock, in exchange for all of Foster's 13,927,460 shares outstanding. Avon has been trading around 23 since mid-February, putting the value of the transaction at approximately $238.2 mil. The transaction must still be approved by Foster's shareholders. With the acquisition of Foster, Avon is carrying over its traditional home business orientation into one of the health care industry's fastest-growing segments -- home health care. Avon has emphasized health care as an area of diversification since the early 1970s, when the firm first began looking for an entry into that marketplace. Avon eventually found its opening with Mallinckrodt, purchased under former Avon Chairman David Mitchell for approximately $720 mil. in cash. The beauty aid giant's latest health care move indicates that interest has continued under the company's new leadership, Avon Chairman, President, and CEO Hicks Waldron. The Foster acquisition is Avon's first major buy since Hicks assumed control last August. The Foster purchase is one-third the size of the Mallinckrodt deal, but it is still a big move -- especially in light of the criticism that Avon has taken for the Mallinckrodt purchase. However, the company is buying Foster with stock instead of cash as used for Mallinckrodt. The large cash outlay in 1981 eventually led to a 33% cut in the Avon's quarterly dividend in mid-1982. For its part, Foster is betting the Avon stock at its depressed current value may mean that the eventual value of the purchase will increase with Avon's recovery. In 1983, the company reported sales of about $126 mil., with $85 mil. generated by medical supplies and $41 mil. stemming from home health operations. Foster currently operates 55 home health branches, a spokesman said, up 31% from 1982. Operations are concentrated on the East Coast and in Michigan. To date, health care is paying off as a diversification area for Avon. While corporate sales in 1983 were flat at $3 bil., health care product revenues climbed 31.1% to $299.4 mil., according to Avon's recently released annual report (the health products category does not include Mallinckrodt's chemical sales). Operating profit for the segment grew 26.3% to $51.4 mil. Avon's consolidated operating profit slipped 17.8% to $341.3 mil. for the year.

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