Why Avon Products, Inc. Stock Surged Today

What happened

Shares of Avon Products, Inc. (NYSE: AVP) were moving higher today on news that a Brazilian company had approached the beauty supplier about a potential acquisition. As a result, shares of the struggling cosmetics company spiked, trading up 10.6% as of 2:47 p.m. EDT.

So what

According to The Wall Street Journal, Brazil's Natura Cosmeticos had broached the idea of a takeover with Avon, though it doesn't appear that discussions advanced from there. Avon told the Journal it had received interest from other potential buyers but was focused on a turnaround for the time being.

Natura Cosmeticos is a multilevel marketing company like Avon, and Avon has a strong business in Latin America, making a takeover seem logical. However, Natura said, "There are no negotiations in progress concerning a possible acquisition of Avon."

Now what

Considering Avon's struggles in recent years, it's not surprising that shareholders would cheer a potential buyout nor that a buyer would seek to acquire it, as Avon still has considerable brand recognition and a formidable sales force. Shares are down 89% over the last five years, a sign of the company's woes, and fell as low as $1.38 this summer, but have bounced back since then, following its second-quarter earnings report and insider buying by activist investor and board member James Mitarotonda.

At this point, it doesn't seem that a deal will go through, but Avon has been focused on the Brazilian market, recently appointing a new general manager for the market, which could attract Natura's interest. After its rally over the last two months, the stock might now have finally bottomed out.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.