MERGER WITH NATURA COSMETICOS S.A.

3 Months Ended

Mar. 31, 2020

Business Combinations [Abstract]

MERGER WITH NATURA COSMETICOS S.A.

MERGER WITH NATURA COSMÉTICOS S.A.

On May 22, 2019, the Company entered into the Merger Agreement with Natura Cosméticos S.A., a Brazilian corporation (sociedade anônima) ("Natura Cosméticos"), Natura &Co Holding S.A., a Brazilian corporation (sociedade anônima) ("Natura &Co Holding"), Nectarine Merger Sub I, Inc., a Delaware corporation and a direct wholly owned subsidiary of Natura &Co Holding ("Merger Sub I"), and Nectarine Merger Sub II, Inc., a Delaware corporation and a direct wholly owned subsidiary of Merger Sub I ("Merger Sub II"), pursuant to which (i) Natura &Co Holding, after the completion of certain restructuring steps, holds all issued and outstanding shares of Natura Cosméticos, (ii) Merger Sub II merged with and into Avon, with Avon surviving the merger and (iii) Merger Sub I merge with and into Natura &Co Holding, with Natura &Co Holding surviving the merger and as a result of which Avon became a wholly owned direct subsidiary of Natura &Co Holding (collectively, the "Transaction").

The Transaction was consummated on January 3, 2020, and at this time, the Company became a wholly owned subsidiary of Natura &Co Holding. In connection with the transaction, trading of the Company's stock was suspended by the NYSE, the Company's common stock was subsequently delisted and deregistered.

On completion of the Transaction, each share of Avon common stock issued and outstanding immediately prior to the consummation of the Transaction was converted into the right to receive, at the election of the holder thereof, (i) 0.300 validly issued and allotted, fully paid-up American Depositary Shares of Natura &Co Holding, each representing one Natura &Co Holding Share ("Natura &Co Holding ADSs") against the deposit of two shares of common stock of Natura &Co Holding ("Natura &Co Holding Shares"), subject to adjustment in accordance with the terms of the Merger Agreement, and any cash in lieu of fractional Natura &Co Holding ADSs or (ii) 0.600 validly issued and allotted, fully paid-up Natura &Co Holding Shares, subject to adjustment in accordance with the terms of the Merger Agreement, and any cash in lieu of fractional Natura &Co Holding Shares. Avon's series C preferred stock held by Cerberus Investor were converted to common stock prior to consummation of the Transaction and were therefore automatically converted into common stock of Natura &Co; see Note 13, Series C Convertible Preferred Stock.

Natura &Co Holding Shares are listed on the B3 S.A. - Brasil, Bolsa, Balcão stock exchange, and Natura &Co Holding ADSs are listed on the NYSE. Additionally, upon the consummation of the Transaction, Avon common stock ceased to be traded on the NYSE.

In January 2020, subsequent to the merger, the Company restated the certificate of incorporation. The certificate of incorporate was restated to effect a change in capitalization of the Company by changing the number of authorized shares of stock from 1,525,000,000 shares (of which (i) 1,500,000,000 shares, par value $0.25 per share, are common stock and (ii) 25,000,000 shares, par value $1.00 per share, are preferred stock, to 1,000 shares of common stock, par value $0.01 per share. As a result, all of the issued and outstanding common stock of the Company, being 550,890,788 were cancelled and converted into 101.34 common stock, par value $0.01 per share, and all outstanding treasury shares were cancelled.

The Company has incurred costs of $44 in relation to the Transaction, primarily professional fees during both the quarter ended March 31, 2020 and the year ended December 31, 2019.

During January 2020, it was announced that the employment of certain senior officers of the Company would be terminated, in connection with the Transaction. The Company incurred severance of approximately $25 and acceleration of share based compensation of approximately $10 relating to these terminations triggered by change in control provisions.

As a result of the merger, the Company made payments of approximately $26 related to the settlement of stock options. In addition, any remaining restricted stock units and performance restricted stock units were exchanged for awards of Natura &Co. The replacement awards contain substantially the same terms and conditions of the original awards except for the removal of the performance conditions. As such, the replacement awards contain only a service vesting condition.

On consummation of the Transaction, a deferred compensation scheme relating to current and former employees of the Company became payable which resulted in extinguishing the liability and a cash outflow of approximately $12.

In January 2020, upon completion of the Transaction, the Company's revolving credit facility was cancelled, triggered by change in control provisions. As a result, debt issuance costs of $7.8 was written off.

As a result of the Transaction, the Company will no longer have access to certain tax attributes of approximately $480 to approximately $550 million in certain taxing jurisdictions.