DRS 1 filename1.htm

As confidentially submitted with the Securities and Exchange Commission on July 19, 2019. 

Registration Statement No. 333- 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549 

 

 FORM F-4 

Registration Statement 

Under
the Securities Act of 1933 

 

  Natura &Co Holding S.A. 

(Exact Name of Registrant as Specified in its Charter) 

 

  Natura &Co Holding Inc.

(Translation of Registrant’s Name into English)

 

Federative Republic of Brazil 

(State or Other Jurisdiction of
Incorporation or Organization)

 

2844
(Primary Standard Industrial
Classification Code Number)

Not Applicable 

(I.R.S. Employer
Identification Number)

 

Avenida Alexandre Colares, No. 1188, Sala A17-Bloco A
Parque Anhanguera
São Paulo, São Paulo
05106-000, Brazil
Telephone: +55 11 4446-4200
 

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices) 

 

 Cogency Global Inc.

10 East 40th Street, 10th Floor

New York, NY 10016

(212) 947-7200

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service) 

 

 Copies to:  

Ting S. Chen
Cravath, Swaine & Moore LLP
Worldwide Plaza

825 Eighth Avenue

New York, New York 10019

 

 

Scott A. Barshay
Justin Rosenberg
Paul, Weiss, Rifkind,

Wharton & Garrison LLP
1285 Avenue of the Americas

New York, New York 10019

  Ginny Edwards
Avon Products, Inc.
Building 6, Chiswick Park
London W4 5HR
United Kingdom
 

Manuel Garciadiaz

Daniel Brass

Davis Polk & Wardwell LLP

450 Lexington Avenue

New York, New York 10017

 

  Itamar Gaino Filho
Natura Cosméticos S.A.
Avenida Alexandre Colares, No. 1188, Parque Anhanguera
São Paulo, São Paulo
05106-000, Brazil

___________________

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the effective date of this Registration Statement.

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.

Emerging growth company

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act.

 

 

CALCULATION OF REGISTRATION FEE
Title Of Each Class
Of Securities To Be Registered(1)(2)
Amount To Be Registered Proposed Maximum Offering Price Per Share Proposed Maximum Aggregate Offering Price(3) Amount Of
Registration Fee
Common shares, no par value   U.S.$          U.S.$          U.S.$         
Notes:

(1)The securities being offered hereby may be issued in the form of American Depositary Shares of the registrant, referred to as Natura &Co Holding ADSs. Each Natura &Co Holding ADS represents one common share, nominal value          per common share of Natura &Co Holding, referred to as Natura &Co Holding Shares. The Natura &Co Holding ADSs will be issuable upon deposit of Natura &Co Holding Shares with          acting as the depositary and will be registered under a registration statement on Form F-6 (Registration No. 333- ).

(2)Pursuant to Rule 416 under the Securities Act of 1933, as amended (the “Securities Act”), this Registration Statement also covers an indeterminate number of additional common shares, no par value (“Natura &Co Holding Shares”), of Natura &Co Holding as may be issuable as a result of stock splits, stock dividends or similar transactions.

(3)Pursuant to Rule 457(f) under the Securities Act, and solely for purposes of calculating the registration fee, the proposed maximum aggregate offering price has been calculated based on the number of Avon Common Shares outstanding and the market value of the proposed share consideration per Avon Common Share determined in accordance with Rule 457(c), in each case translated to U.S. dollars using the exchange rate as of          , 2019.

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. 

 

 

 

 

 

Information contained in this joint proxy statement/prospectus is subject to completion and may be changed. A registration statement relating to these securities has been filed with the U.S. Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This document shall not constitute an offer to sell or the solicitation of any offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration under the securities laws of any such jurisdiction.  

 

PRELIMINARY—SUBJECT TO COMPLETION—DATED JULY 19, 2019

 


and

 

 

TRANSACTION PROPOSED—YOUR VOTE IS VERY IMPORTANT

 

        , 2019

 

Dear Avon Shareholder:

 

We cordially invite you to attend a special meeting of shareholders of Avon (together with any adjournments or postponements thereof, the “Avon Special Meeting”) on         , 2019, at          a.m./p.m.          time. As previously announced, Avon Products, Inc., a New York corporation (“Avon”), Natura Cosméticos S.A., a corporation (sociedade anônima) incorporated under the laws of the Federative Republic of Brazil (“Natura Cosméticos”), Natura &Co Holding S.A., a corporation (sociedade anônima) incorporated under the laws of the Federative Republic of Brazil (“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” and, together with Merger Sub I, the “Merger Subs”), entered into an Agreement and Plan of Mergers, dated May 22, 2019 (the “Merger Agreement”), pursuant to which (i) Natura &Co Holding will, after the completion of certain restructuring steps, hold all issued and outstanding shares of Natura Cosméticos, (ii) Merger Sub II will merge with and into Avon, with Avon surviving the merger and (iii) Merger Sub I will merge with and into Natura &Co Holding, with Natura &Co Holding surviving the merger and as a result of which Avon will become a wholly owned direct subsidiary of Natura &Co Holding (collectively, the “Transaction”). If the Transaction is completed, Avon and Natura Cosméticos will each become wholly owned subsidiaries of Natura &Co Holding.

 

If the Transaction is completed, each share of common stock, par value U.S.$0.25 per share, of Avon (the “Avon Common Shares”) issued and outstanding immediately prior to the consummation of the Transaction (other than as provided in the Merger Agreement) will be converted into the ultimate 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 the requisite number of 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) 0.300 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 and each share of Series C Preferred Stock, par value U.S.$1.00 per share, of Avon (the “Avon Preferred Shares” and, together with Avon Common Shares, the “Avon Shares”) issued and outstanding immediately prior to the consummation of the Transaction will be automatically converted into the right to receive an amount in cash without interest equal to the Stated Value (as defined in Avon’s certificate of incorporation) of such Avon Preferred Share. As of the Record Date, the Stated Value was        . Natura &Co Holding Shares are expected to be listed on the B3 S.A. – Brasil, Bolsa, Balcão and Natura &Co Holding ADSs are expected to be listed on the New York Stock Exchange, in each case effective as of the Closing Date.

 

Based on the number of common shares of Natura Cosméticos (the “Natura Cosméticos Shares”) and securities convertible into Natura Cosméticos Shares and the number of Avon Common Shares and securities convertible into Avon Common Shares, in each case issued and outstanding as of May 22, 2019, it is anticipated that, immediately following completion of the Transaction, former holders of Avon Common Shares will own approximately 24% of Natura &Co Holding on a fully diluted basis and former Natura Cosméticos shareholders will own approximately 76% of Natura &Co Holding on a fully diluted basis.

 

 

 

 

Under the laws of the State of New York, Avon shareholders must provide their approval before the transactions contemplated by the Merger Agreement can be completed. You are being asked to consider and vote to (i) adopt the Merger Agreement (the “Transaction Proposal”), (ii) approve, by non-binding, advisory vote, the compensation that may become payable to Avon’s named executive officers in connection with the Transaction (the “Advisory Compensation Proposal”) and (iii) approve one or more adjournments of the Avon Special Meeting to another time or place, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Avon Special Meeting to approve the Transaction Proposal (the “Adjournment Proposal”). In addition, Avon shareholders may transact such other business as may properly come before the meeting.

 

Natura Cosméticos shareholders and Natura &Co Holding shareholders will also be asked to approve certain terms relating to the Transaction and any other matters related thereto at a series of extraordinary general meetings of Natura Cosméticos shareholders and Natura &Co Holding shareholders.

 

We cannot complete the Transaction unless the Avon shareholders approve the Transaction Proposal. The Transaction is not conditioned on approval of the Advisory Compensation Proposal or the Adjournment Proposal. Failures to vote, votes to abstain and failures to instruct your bank, broker or other nominee to vote will have the same effect as votes “AGAINST” the approval of the Transaction Proposal. Your vote is very important, regardless of the number of shares you own. Whether or not you plan to attend the Avon Special Meeting, please submit a proxy to vote as soon as possible by following the instructions in the accompanying joint proxy statement/prospectus.

 

After careful consideration, the Avon board of directors has (i) approved, adopted and declared advisable the Merger Agreement and all of the transactions contemplated by the Merger Agreement, (ii) declared that it is fair to and in the best interests of Avon and its shareholders that Avon enter into the Merger Agreement and consummate the transactions contemplated by the Merger Agreement and (iii) directed that the Merger Agreement be submitted to the shareholders of Avon and recommended that the shareholders of Avon vote their Avon Shares in favor of the adoption of the Merger Agreement at the Avon Special Meeting.

 

ACCORDINGLY, THE AVON BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE TRANSACTION PROPOSAL, “FOR” THE ADVISORY COMPENSATION PROPOSAL AND “FOR” THE ADJOURNMENT PROPOSAL.

 

In considering the recommendation of the Avon board of directors, you should be aware that certain directors and executive officers of Avon will have interests in the Transaction that may be different from, or in addition to, the interests of Avon shareholders generally. See the section of the joint proxy statement/prospectus entitled “Interests of Certain Persons in the Transaction” beginning on page 323 of the joint proxy statement/prospectus.

 

More information about Natura &Co Holding, Natura Cosméticos, Natura &Co, Avon, their respective subsidiaries, the Avon Special Meeting, the Transaction and the matters to be presented at the Avon Special Meeting is contained in the accompanying joint proxy statement/prospectus. Before voting, we urge you to read this document, including the annexes, the exhibits and the documents incorporated by reference, carefully and in full. In particular, we urge you to read carefully the section of the accompanying joint proxy statement/prospectus entitled “Risk Factors” beginning on page 32 of the joint proxy statement/prospectus.

 

If you have any questions regarding the Transaction, need assistance in submitting your proxy or voting your Avon Shares or need additional copies of the joint proxy statement/prospectus or the enclosed proxy card, please contact Innisfree M&A Incorporated, Avon’s proxy solicitor. Banks and brokers call collect: (212) 750-5833; shareholders call toll-free: (877) 456-3442.

 

Thank you for your consideration and continued support. We look forward to the successful completion of the Transaction.

 

Sincerely,

 

Chan W. Galbato
Avon Products, Inc.

 

 

 

 

None of the U.S. Securities and Exchange Commission (the “SEC”), the Brazilian Securities Commission (Comissão de Valores Mobiliários), (the “CVM”), nor any securities commission of any jurisdiction has approved or disapproved the Transaction described in the joint proxy statement/prospectus or the securities to be issued in connection with the Transaction or passed upon the adequacy or accuracy of this document or the merits or fairness of the Transaction. Any representation to the contrary is a criminal offense. The accompanying joint proxy statement/prospectus does not constitute an offer to buy or sell, or a solicitation of an offer to buy or sell, any securities, or a solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. For the avoidance of doubt, the accompanying joint proxy statement/prospectus does not constitute an offer to buy or sell securities or a solicitation of an offer to buy or sell any securities in Brazil or a solicitation of a proxy under the laws of Brazil, and it is not intended to be, and is not, a prospectus or an offer document within the meaning of Brazilian law and the rules of the CVM. You should inform yourself about and observe any such restrictions, and none of Avon, Natura &Co, Natura &Co Holding or their respective subsidiaries accepts any liability in relation to any such restrictions.

 

The accompanying joint proxy statement/prospectus is dated         , 2019 and is first being mailed to Avon shareholders on or about         , 2019.

 

 

 

 

 

Building 6, Chiswick Park 

London W4 5HR, United Kingdom

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

 

        , 2019

 

Dear Avon Shareholder:

 

Notice is hereby given that a special meeting of shareholders (together with any adjournments or postponements thereof, the “Avon Special Meeting”) of Avon Products, Inc., a New York corporation (“Avon”), will be held on         , 2019, at          a.m./p.m.          time, at         . At the Avon Special Meeting, Avon shareholders will be asked to take action on:

 

·a proposal to adopt the Agreement and Plan of Mergers, dated May 22, 2019 (the “Merger Agreement”), among Avon, Natura Cosméticos S.A., a corporation (sociedade anônima) incorporated under the laws of the Federative Republic of Brazil (“Natura Cosméticos”), Natura &Co Holding S.A., a corporation (sociedade anônima) incorporated under the laws of the Federative Republic of Brazil (“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” and, together with Merger Sub I, the “Merger Subs”), pursuant to which Avon will become a wholly owned direct subsidiary of Natura &Co Holding (collectively, the “Transaction”) (the “Transaction Proposal”);

 

·a proposal to approve, by non-binding, advisory vote, the compensation that may become payable to Avon’s named executive officers in connection with the Transaction (the “Advisory Compensation Proposal”); and

 

·a proposal to approve one or more adjournments of the Avon Special Meeting to another time or place, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Avon Special Meeting to approve the Transaction Proposal (the “Adjournment Proposal”).

 

In addition, Avon shareholders may transact such other business as may properly come before the meeting.

 

Your proxy is being solicited by the Avon board of directors. After careful consideration, the Avon board of directors has (i) approved, adopted and declared advisable the Merger Agreement and all of the transactions contemplated by the Merger Agreement, (ii) declared that it is fair to and in the best interests of Avon and its shareholders that Avon enter into the Merger Agreement and consummate the transactions contemplated by the Merger Agreement and (iii) directed that the Merger Agreement be submitted to the shareholders of Avon and recommended that the shareholders of Avon vote their shares of stock of Avon (“Avon Shares”) in favor of the adoption of the Merger Agreement at the Avon Special Meeting.

 

Accordingly, the Avon board of directors recommends that Avon shareholders vote:

 

1.“FOR” the Transaction Proposal;

2.“FOR” the Advisory Compensation Proposal; and

3.“FOR” the Adjournment Proposal.

 

The Avon board of directors has fixed the close of business on         , 2019 as the Record Date for determination of Avon shareholders entitled to receive notice of, and to vote at, the Avon Special Meeting. Only holders of record of outstanding Avon Shares at the close of business on the record date are entitled to receive notice of, and to vote

 

 

 

 

at, the Avon Special Meeting. Approval of the Transaction Proposal requires the affirmative vote of the holders of two-thirds of the outstanding Avon Shares entitled to vote on the matter at the Avon Special Meeting, voting together as a single class on an as-converted basis. Votes to abstain will have the same effect as votes “AGAINST” the approval of the Transaction Proposal. Approval of each of the Advisory Compensation Proposal and the Adjournment Proposal requires the affirmative vote of a majority of votes cast thereon, voting together as a single class on an as-converted basis. If you fail to submit a valid proxy or to vote in person at the Avon Special Meeting or if you vote to abstain, it will have no effect on the approval of the Advisory Compensation Proposal or the Adjournment Proposal.

 

Your vote is very important. Whether or not you plan to attend the Avon Special Meeting, we urge you to promptly vote by Internet, by telephone or by mail to ensure that your shares are represented at the Avon Special Meeting.

 

Before voting, we urge you to read this document, including the annexes, the exhibits and the documents incorporated by reference, carefully and in full. In particular, we urge you to read carefully the section of the accompanying joint proxy statement/prospectus entitled “Risk Factors” beginning on page 32.

 

If you have any questions regarding the Transaction, need assistance in submitting your proxy or voting your Avon Shares or need additional copies of the joint proxy statement/prospectus or the enclosed proxy card, please contact Innisfree M&A Incorporated, Avon’s proxy solicitor. Banks and brokers call collect: (212) 750-5833; shareholders call toll-free: (877) 456-3442.

 

  By order of the Board of Directors,
   
   
  By:  
    Ginny Edwards, Vice President, Interim General Counsel and Corporate Secretary
    Avon Products, Inc.
   

 

 

 

ABOUT THIS JOINT PROXY STATEMENT/PROSPECTUS

 

This document, which forms part of a registration statement on Form F-4 filed with the U.S. Securities and Exchange Commission (the “SEC”) by Natura &Co Holding S.A., a corporation (sociedade anônima) incorporated under the laws of Brazil (“Natura &Co Holding”) (File No. 333-        ), constitutes a prospectus of Natura &Co Holding under Section 5 of the U.S. Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of common stock of Natura &Co Holding (“Natura &Co Holding Shares”), to be deposited with          (the “ADS Depositary”) or issued to Natura Cosméticos shareholders and Avon common shareholders pursuant to the transactions contemplated by the Agreement and Plan of Mergers, dated as of May 22, 2019, and entered into by and among Avon Products, Inc., a New York corporation (“Avon”), Natura Cosméticos S.A., a corporation (sociedade anônima) incorporated under the laws of Brazil (“Natura Cosméticos”), Natura &Co Holding and certain other parties thereto (the “Merger Agreement”). The ADS Depositary will file a registration statement on Form F-6 (Reg. No. 333- ) with respect to the American Depository Shares of Natura &Co Holding, each representing one Natura &Co Holding Share (“Natura &Co Holding ADSs”). This document also constitutes a proxy statement of Avon under Section 14(a) of the Exchange Act, as well as a notice of meeting and a proxy statement under New York law with respect to the meeting of Avon shareholders (together with any adjournments or postponements thereof, the “Avon Special Meeting”), at which Avon shareholders will be asked to consider and vote upon the proposals to:

 

·adopt the Merger Agreement (the “Transaction Proposal”);

 

·approve, by non-binding, advisory vote, the compensation that may become payable to Avon’s named executive officers in connection with the Transaction (the “Advisory Compensation Proposal”); and

 

·approve one or more adjournments of the Avon Special Meeting to another time or place, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Avon Special Meeting to approve the Transaction Proposal (the “Adjournment Proposal”).

 

Information contained in or incorporated by reference into this joint proxy statement/prospectus relating to Avon has been supplied by Avon and information contained in this joint proxy statement/prospectus relating to the Natura Entities has been provided by the Natura Entities. Any reference to a website address does not constitute incorporation by reference of the information contained at or available through such website, and you should not consider it to be a part of this joint proxy statement/prospectus.

 

You should rely only on the information contained in or incorporated by reference into this joint proxy statement/prospectus. No person has been authorized to provide you with information that is different from what is contained in, or incorporated by reference into, this joint proxy statement/prospectus, and, if given or made by any person, such information must not be relied upon as having been authorized. You should not assume that the information contained in this joint proxy statement/prospectus is accurate as of any date other than its date as specified on the cover unless otherwise specifically provided herein. Further, you should not assume that the information contained in or incorporated by reference into this joint proxy statement/prospectus is accurate as of any date other than the date of the incorporated document. Neither the mailing of this joint proxy statement/prospectus to Avon shareholders nor the issuance by Natura &Co Holding of Natura &Co Holding Shares or ADSs pursuant to the Merger Agreement will create any implication to the contrary.

 

None of the SEC, the Brazilian Securities Commission (Comissão de Valores Mobiliários) (the “CVM”), nor any securities commission of any jurisdiction has approved or disapproved any of the transactions described in this joint proxy statement/prospectus or the securities to be issued under this document or passed upon the adequacy or accuracy of this document. Any representation to the contrary is a criminal offense. This joint proxy statement/prospectus does not constitute an offer to buy or sell, or a solicitation of an offer to buy or sell, any securities, or a solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. For the avoidance of doubt, this joint proxy statement/prospectus does not constitute an offer to buy or sell securities or a solicitation of an offer to buy or sell any securities in Brazil or a solicitation of a proxy under the laws of Brazil, and it is not intended to be, and is not, a prospectus or an offer document within the meaning of Brazilian law and the rules of the CVM. You should inform yourself about and observe any such restrictions, and none of Avon, Natura Cosméticos or Natura &Co Holding accepts any liability in relation to any such restrictions.

 

 

 

table of contents

_________________

 

Page

 

Cautionary Statement Concerning Forward-Looking Statements iv
Certain Defined Terms and Conventions Used in This Joint Proxy Statement/Prospectus vii
Presentation of Financial and Certain Other Information ix
Incorporation of Certain Documents by Reference xi
Where You Can Find More Information xii
Exchange Rates xiii
Questions and Answers About the Transaction and the Avon Special Meeting 1
Questions and Answers About the Transaction 1
Questions and Answers About the Avon Special Meeting 12
Summary 17
The Parties 17
Risk Factors 18
The Transaction and the Merger Agreement 18
The Avon Special Meeting 18
Merger Consideration 19
Reasons for the Proposed Transaction 19
Opinion of Avon’s Financial Advisor 20
Opinion of the Independent Non-Cerberus Directors’ Financial Advisor 21
Regulatory Approvals Required for the Transaction 21
Withdrawal Rights for Natura Cosméticos Shareholders 22
No Appraisal Rights for Avon Common Shareholders 22
No Solicitation of an Avon Acquisition Proposal; Avon Adverse Recommendation Change 22
No Solicitation of a Natura Cosméticos Acquisition Proposal 23
Conditions Precedent That Must Be Satisfied or Waived for the Transaction to Occur 23
Termination of the Merger Agreement 24
Termination Fees 24
The Natura Founders’ Voting and Support Agreement 25
The Cerberus Investor Voting and Support Agreement 26
Material U.S. Tax Considerations 26
Brazilian Taxation 27
Accounting Treatment of the Transaction 27
Treatment of Equity and Equity-Based Awards 27
Treatment of Cash Long-Term Incentive Awards 27
Interests of Certain Persons in the Transaction 28
Board of Directors and Management of Natura &Co Holding Following Completion of the Transaction 28
Listing of Natura &Co Holding Shares 29
Listing of Natura &Co Holding ADSs 29
Delisting and Deregistration of Avon Common Shares 29
Comparison of the Rights of Holders of Natura &Co Holding Shares and Avon Shares 29
Selected Financial Data of Natura &Co 29
Selected Financial Data of Avon 30
Unaudited Pro Forma Condensed Financial Information 30
Comparative per Share Market Data 30
Comparative Historical and Unaudited Pro Forma per Share Data 30
Risk Factors 32
Risks Relating to the Transaction 32
Risks Relating to the Combined Company Following Completion of the Transaction 39
Risks Related to Our Business and Industries in Which We Operate 42
Risks Relating to the Countries in Which We Operate 57
Risks Relating to the Natura &Co Holding Shares and Natura &Co Holding ADSs 63
Risks Related to Avon’s Business 71
Comparative Per Share Market Data 72
Selected Unaudited Pro Forma Per Share Data 74

 

 i

 

Comparative Historical and Unaudited Pro Forma Per Share Data 75
Selected Financial Data of Natura &Co 76
Selected Financial Data of Avon 78
Unaudited Pro Forma Condensed Financial Information 79
The Avon Special Meeting 93
General 93
Recommendation of the Avon Board of Directors 94
Record Date; Shareholders Entitled to Vote 94
Voting by Avon’s Directors and Executive Officers 94
Quorum 94
Required Vote 94
Failure to Either Submit a Proxy or Attend the Avon Special Meeting; Broker Non-Votes and Abstentions 95
How to Vote Your Shares 95
Attendance 96
Voting of Proxies 96
Revocation 97
Avon Personal Savings Account Plan 97
Tabulation of Votes 97
Solicitation of Proxies 97
Adjournments 97
Questions and Additional Information 98
The Transaction 99
Overview 99
Background to the Transaction 102
Recommendation of the Avon Board of Directors; Avon’s Reasons for the Transaction 118
Opinion of Avon’s Financial Advisor 125
Opinion of the Independent Non-Cerberus Directors’ Financial Advisor 132
Certain Forecasts 139
Certain Synergy and Cost Reduction Estimates 143
Natura Cosméticos’s Reasons for the Proposed Transaction 144
Financing Obtained by Natura Cosméticos for the Transaction 145
Listing of Natura &Co Holding Shares 145
Listing of the Natura &Co Holding ADSs 145
Delisting and Deregistration of Avon Common Shares and Natura Cosméticos Shares 145
Withdrawal Rights for Natura Cosméticos Shareholders 145
No Appraisal Rights for Avon Common Shareholders 146
Certain Information on the Ownership and Management of Natura Cosméticos and Avon Following the Transaction 146
Accounting Treatment of the Transaction 147
Dividend Information 147
Past Contracts, Transactions, Negotiations and Agreements 148
Expenses 148
The Transaction Documents 149
The Merger Agreement 149
The Natura Founders’ Voting And Support Agreement 180
The Cerberus Investor Voting And Support Agreement 180
Material Tax Considerations 182
Information About the Companies 193
Natura &Co 193
Avon 193
Natura &Co Holding 193
Merger Sub I 194
Merger Sub II 194
Information About Natura &Co 195
Information About Avon 235
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Natura &Co 236
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Avon 268

 

 ii

 

Management and Compensation of Natura &Co 269
Management and Compensation of Avon 283
Description of Natura &Co Holding Shares and Natura &Co Holding By-Laws 294
Description of Natura &Co Holding ADSs and Natura &Co Holding Deposit Agreement 307
Major Shareholders and Related Party Transactions 316
Sec urity Ownership of Certain Beneficial Owners and Management of Avon 320
Interests of Certain Persons in the Transaction 323
Comparison of the Rights of Holders of Natura &Co Holding Shares and Avon Shares 324
Regulatory Matters 339
Experts 340
Legal Matters 340
Householding of Proxy Materials 341
Enforceability of Civil Liabilities 342
Future Shareholder Proposals 344
Avon Proposals 345
Index to Financial Statements F-1
Audited Consolidated Financial Statements of Natura Cosméticos S.A. as of December 31, 2018 and 2017 and for the Years Ended December 31, 2018, 2017 and 2016 F-2
Audited Financial Statements of The Body Shop International Limited as of and for the Eight Months Ended August 31, 2017 F-95
Part II Information Not Required In The Prospectus II-1

 

 

ANNEXES

 

Annex A:  Merger Agreement A-1
Annex B:  Natura Founders Voting and Support Agreement B-1
Annex C:  Cerberus Investor Voting and Supporting Agreement C-1
Annex D*:  Natura & Co. Holding By-laws D-1
Annex E:  Opinion of Goldman Sachs E-1
Annex F:  Opinion of PJT Partners F-1

 

*To be filed by amendment.

 

 iii

 

Cautionary Statement Concerning Forward-Looking Statements

 

This joint proxy statement/prospectus contains forward-looking statements concerning Avon, Natura &Co, Natura &Co Holding, the Transaction (as defined herein) and other matters. These statements may discuss goals, intentions and expectations as to future plans, trends, events, results of operations or financial conditions, or other matters, based on current beliefs of the management of Avon and Natura &Co as well as assumptions made by, and information currently available to the management of both companies. Forward-looking statements can be identified by the fact that they do not relate only to historical or current facts and may be accompanied by words such as “aim,” “anticipate,” “believe,” “plan,” “could,” “would,” “should,” “estimate,” “expect,” “forecast,” “future,” “guidance,” “intend,” “may,” “will,” “possible,” “potential,” “predict,” “project” or similar words, phrases or expressions, although the absence of any such words or expressions does not mean that a particular statement is not a forward-looking statement. These statements are subject to various risks and uncertainties, many of which are outside the parties’ control. Therefore, you should not place undue reliance on these statements. Factors that could cause actual plans and results to differ materially from those in these statements include, but are not limited to, risks and uncertainties detailed in the section of this joint proxy statement/prospectus entitled “Risk Factors,” and Avon’s periodic public filings with the SEC, including those discussed in the section of this joint proxy statement/prospectus entitled “Risk Factors” in Item 1A of the Avon Annual Report on Form 10-K filed with the SEC on February 21, 2019, factors contained or incorporated by reference into such documents and in subsequent filings by Avon with the SEC and factors described in Natura &Co’s annual reports, registration documents and other documents filed with the CVM, and the following factors:

 

·global economic conditions;

 

·the occurrence of any change, effect, event, occurrence, development, matter, state of facts, series of events or circumstances that could give rise to the termination of the Merger Agreement, including a termination of the Merger Agreement under circumstances that could require Avon to pay a termination fee to Natura Cosméticos or require Natura Cosméticos or Natura &Co Holding to pay a termination fee to Avon;

 

·failure to obtain applicable regulatory or shareholder approvals in a timely manner or otherwise, or being required to accept conditions that could reduce the anticipated benefits of the Transaction as a condition to obtaining regulatory approvals;

 

·failure to satisfy other closing conditions to the Transaction;

 

·the length of time necessary to complete the Transaction;

 

·risks associated with tax liabilities, or changes in U.S., Brazilian or other international tax treaties or laws or interpretations to which they are subject;

 

·events and risk perception in relation to corruption allegations involving Brazilian companies and politicians, as well as the impacts of the resulting investigation on the Brazilian economy and political outlook as a whole;

 

·risks that the new businesses will not be integrated successfully or that the cost, time and effort required to integrate the newly combined businesses may be greater than anticipated;

 

·failure to effectively manage the newly combined business, or that the combined company will not realize estimated cost savings, value of certain tax assets, synergies and growth or that such benefits may take longer to realize than expected;

 

·the inability to close the Transaction, the inability to achieve the anticipated benefits and synergies of the combined companies’ operations following the completion of the Transaction or the effects of the Transaction on the combined companies’ financial condition, operating results and cash flow;

 

·the inability of Avon and Natura &Co to meet expectations regarding the timing, completion and accounting and tax treatments with respect to the Transaction;

 

·risks relating to unanticipated costs of integration;

 

 iv

·reductions in customer spending, a slowdown in customer payments and changes in customer demand for products and services;

 

·unanticipated changes relating to competitive factors in the industries in which the companies operate;

 

·ability to hire and retain key personnel;

 

·diversion of the attention of Avon and Natura &Co management from ongoing business concerns;

 

·pending consummation of the Transaction, limitations imposed on the ability of Avon and Natura &Co to operate their respective businesses by the Merger Agreement;

 

·operating costs, customer loss or business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers, distributors or suppliers) being greater than expected in anticipation of, or, if consummated, following, the Transaction;

 

·the outcome of any legal proceedings that have been or may be instituted against Avon, Natura &Co, Natura &Co Holding and/or others relating to the Transaction;

 

·the potential impact of announcement or consummation of the Transaction on relationships with third parties, including clients, employees, independent beauty consultants, Sales Representatives and competitors;

 

·ability to attract new clients and retain existing clients in the manner anticipated;

 

·the impact of acquisitions the companies have made or may make;

 

·reliance on and integration of information technology systems;

 

·changes in legislation or governmental regulations affecting the companies; international, national or local economic, social or political conditions that could adversely affect the companies or their clients;

 

·the market price for Natura &Co Holding Shares potentially being affected, following the Transaction, by factors that historically have not affected the market price for Avon Common Shares or Natura Cosméticos Shares as shares of standalone companies;

 

·the uncertainty of the value of the Merger Consideration that Avon common shareholders will receive in the Transaction due to a fixed Exchange Ratio (as defined herein) and fluctuations in the price of Natura &Co Holding Shares and Natura &Co Holding ADSs;

 

·conditions in the stock and credit markets;

 

·risks associated with assumptions the parties make in connection with the parties’ critical accounting estimates and legal proceedings; and

 

·the parties’ international operations, which are subject to the risks of currency fluctuations and foreign exchange controls.

 

The foregoing list of factors is not exhaustive. You should carefully consider the foregoing factors and the other risks and uncertainties that affect the parties’ businesses, including those described in this joint proxy statement/prospectus, and information contained in or incorporated by reference into this joint proxy statement/prospectus. See the section of this joint proxy statement/prospectus entitled “Where You Can Find More Information.”

 

Nothing in this joint proxy statement/prospectus is intended, or is to be construed, as a profit projection or to be interpreted to mean that earnings per Natura Cosméticos Share or Avon Share for the current or any future financial years or those of the combined company, will necessarily match or exceed the historical published earnings per Natura Cosméticos Share or Avon Share, as applicable.

 

 v

Avon, Natura &Co and Natura &Co Holding are under no obligation, and each expressly disclaims any obligation, to update, alter or otherwise revise any forward-looking statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events or otherwise. Persons reading this document are cautioned not to place undue reliance on these forward-looking statements, which only speak as of the date hereof.

 

 

 vi

 

Certain Defined Terms and Conventions Used in This Joint Proxy Statement/Prospectus

 

In this joint proxy statement/prospectus, the “Company,” “we,” “us” and “our” refer to Natura &Co, as defined below, unless the context otherwise requires. References to the “Companies” refer to Natura &Co and Avon and their respective consolidated subsidiaries collectively. All references herein to the “real,” “reais” or “R$” are to the Brazilian real, the official currency of Brazil. All references to “U.S. dollars,” “dollars” or “U.S.$” are to United States dollars, the official currency of the United States. All references to “pounds,” “pound sterling” or “£” are to the British pound sterling, the official currency of the United Kingdom.

 

In addition, as used in this joint proxy statement/prospectus, the following defined terms have the following respective meanings:

 

“ABIHPEC” means the Brazilian Personal Hygiene, Perfumery and Cosmetics Association (Associação Brasileira da Indústria de Higiene Pessoal, Perfumaria e Cosméticos).

 

“Aesop” means Emeis Holding Pty Ltd and its consolidated subsidiaries.

 

“Avon” means Avon Products, Inc., a New York corporation.

 

“Avon Shares” means shares of both Avon Common Shares and Avon Preferred Shares.

 

“B3” means the B3 S.A. – Brasil, Bolsa, Balcão, or São Paulo Stock Exchange.

 

“BNDES” means the Banco Nacional de Desenvolvimento Econômico e Social, or the Brazilian National Economic and Social Development Bank.

 

“Brazil” means the Federative Republic of Brazil and the phrase “Brazilian government” refers to the federal government of Brazil.

 

“Brazilian Central Bank” means the Central Bank of Brazil (Banco Central do Brasil).

 

“Brazilian Corporation Law” means the Brazilian Law No. 6,404/76, as amended.

 

“CDI,” or the Interbank Deposit Certificate (Certificado de Depósito Interbancário), means the “over extra group” daily average rate for interbank deposits, expressed as an annual percentage, based on 252 business days, calculated daily and published by B3, or any other index as may be further used in substitution thereof.

 

“CMN” means the Conselho Monetário Nacional, or the Brazilian Monetary Council.

 

“CVM” means the Comissão de Valores Mobiliários, or the Brazilian Securities Commission.

 

“DOJ” means the United States Department of Justice.

 

“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.

 

“Exchange Ratio” is equal to 0.300.

 

“FGV” means the Fundação Getúlio Vargas.

 

“FTC” means the United States Federal Trade Commission.

 

“IASB” means the International Accounting Standards Board.

 

“IBGE” means the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística).

 

“IFRS” means International Financial Reporting Standards as issued by the IASB.

 

 vii

“independent beauty consultants” are independent sales representatives who, although they are not employed by Natura &Co, sell Natura &Co products to customers of Natura &Co.

 

“Natura” means Natura Cosméticos S.A., a corporation (sociedade anônima) incorporated under the laws of Brazil and its subsidiaries (excluding Aesop, The Body Shop and their respective subsidiaries).

 

“Natura &Co” means Natura Cosméticos S.A. and its subsidiaries (including Aesop, The Body Shop and their respective subsidiaries).

 

“Natura &Co Holding” means Natura &Co Holding S.A., a corporation (sociedade anônima) incorporated under the laws of Brazil.

 

“Natura &Co Holding By-Laws” means the by-laws of Natura &Co Holding.

 

“Natura &Co Holding Shares” means common shares of Natura &Co Holding.

 

“Natura Cosméticos” means Natura Cosméticos S.A., a corporation (sociedade anônima) incorporated under the laws of Brazil.

 

“Natura Cosméticos Shares” means common shares of Natura Cosméticos.

 

“Natura Entities” means Natura &Co, Natura &Co Holding, Merger Sub I and Merger Sub II, collectively.

 

“Natura Indústria” means Indústria e Comércio de Cosméticos Natura Ltda.

 

“Novo Mercado Rules” means the listing rules of the Novo Mercado segment of the B3.

 

“NYBCL” means the New York Business Corporation Law.

 

“NYSE” means the New York Stock Exchange.

 

“Sales Representatives” means independent contractors who are not employees of Avon or any of its subsidiaries, but directly or indirectly purchase products or services from Avon or any of its subsidiaries.

 

“Securities Act” means the U.S. Securities Act of 1933, as amended.

 

“The Body Shop” means The Body Shop International Limited, a private limited company registered in England and Wales and its subsidiaries.

 

“United Kingdom” or “U.K.” means the United Kingdom of Great Britain and Northern Ireland.

 

“United States” or “U.S.” means the United States of America.

 

“U.S. GAAP” means U.S. generally accepted accounting principles.

 

 viii

Presentation of Financial and Certain Other Information

 

Financial Statements

 

Natura &Co

 

We have included in this joint proxy statement/prospectus financial information derived from the consolidated financial statements as of and for each of the years in the five-year period ended December 31, 2018. The consolidated financial statements of Natura &Co are prepared in accordance with IFRS as issued by the IASB and are presented in Brazilian reais.

 

In addition, we have included audited financial statements for The Body Shop as of and for the eight months ended August 31, 2017, prior to our acquisition of The Body Shop in September 2017.

 

Avon

 

Avon’s annual consolidated financial information for each of the years in the three year period ended December 31, 2018 and as of December 31, 2018 and 2017 have been derived from the audited consolidated financial statements of Avon appearing in Avon’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 which is incorporated by reference in this joint proxy statement/prospectus. Avon’s annual consolidated financial information for each of the years ended December 31, 2015 and December 31, 2014 and as of December 31, 2016, December 31, 2015, and December 31, 2014 have been derived from Avon’s audited consolidated financial statements as of and for such years contained in Avon’s other reports filed with the SEC, which are not incorporated by reference into this joint proxy statement/prospectus.

 

The consolidated financial statements of Avon are prepared under U.S. GAAP and are presented in U.S. dollars.

 

Natura &Co Holding

 

Natura &Co Holding intends to prepare its financial statements in IFRS and to present such financial statements in Brazilian reais.

 

Currency Conversions

 

On July 18, 2019, the exchange rate for reais into U.S. dollars was R$3.7489 to U.S.$ 1.00, based on the selling rate as reported by the Brazilian Central Bank. The selling rate was R$3.875 to U.S.$ 1.00 as of December 31, 2018, R$3.308 to U.S.$ 1.00 as of December 29, 2017, R$3.259 to U.S.$ 1.00 as of December 30, 2016, and R$3.905 to U.S.$ 1.00 as of December 31, 2015, in each case, as reported by the Brazilian Central Bank. The real/U.S. dollar exchange rate fluctuates widely, and the selling rate as of July 18, 2019 may not be indicative of future exchange rates. See “Exchange Rates” for information regarding exchange rates for the Brazilian currency since January 1, 2014.

 

Solely for the convenience of the reader, we have translated certain amounts included in “Selected Financial Data of Natura &Co” and elsewhere in this joint proxy statement/prospectus from reais into U.S. dollars using the selling rate as reported by the Brazilian Central Bank as of December 31, 2018 of R$3.875 to U.S.$1.00. These translations should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or at any other exchange rate.

 

Rounding

 

We have made rounding adjustments to reach some of the figures included in this joint proxy statement/prospectus. As a result, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that precede them.

 

Market Data

 

We obtained market and competitive position data, including market forecasts, used throughout this joint proxy statement/prospectus from market research, publicly available information and industry publications, as well as internal surveys. We include data from reports prepared by the Brazilian Central Bank, the B3, the IBGE, the

 

 ix

ABIHPEC, the BNDES, the FGV and Euromonitor International. We believe that all market data in this joint proxy statement/prospectus is reliable, accurate and complete.

 

 x

 

Incorporation of Certain Documents by Reference

 

This joint proxy statement/prospectus incorporates important business and financial information about us and Avon that is not included in or delivered with the joint proxy statement/prospectus. The SEC allows us to “incorporate by reference” information filed with the SEC, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this joint proxy statement/prospectus, and certain later information that we or Avon file with the SEC will automatically update and supersede this information. We incorporate by reference the following documents:

 

·Avon’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on February 21, 2019 (SEC File No. 001-04881), including the information specifically incorporated by reference into such annual report on Form 10-K from Avon’s definitive proxy statement for the 2019 annual meeting of shareholders, filed with the SEC on April 2, 2019, which we refer to as the “Avon 2018 Form 10-K”;

 

·Avon’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019;

 

·Avon’s current reports on Form 8-K (excluding any information and exhibits furnished under either Item 2.02 and Item 7.01 thereof) filed with the SEC on January 8, 2019; January 9, 2019; January 30, 2019; February 14, 2019 (filed at 6:57:06); February 22, 2019; March 4, 2019; March 19, 2019; April 2, 2019; April 25, 2019; May 1, 2019; May 17, 2019; May 22, 2019; May 24, 2019; June 20, 2019, June 26, 2019 and July 3, 2019 (SEC File No. 001-04881); and

  

·any documents filed by Avon with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this joint proxy statement/prospectus and before the date of the special meeting shall be deemed to be incorporated by reference into this joint proxy statement/prospectus and made a part of this joint proxy statement/prospectus from the respective dates of filing (excluding any information and exhibits furnished under either Item 2.02 or 7.01 of any current report on Form 8-K unless specifically stated otherwise).

 

Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this joint proxy statement/prospectus to the extent that a statement contained in this joint proxy statement/prospectus modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this joint proxy statement/prospectus.

 

These documents are available on the SEC’s website at www.sec.gov and from other sources. You may read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC (http://www.sec.gov).

 

None of Natura &Co, Avon or Natura &Co Holding has authorized anyone to give any information or make any representation about the Merger Agreement and the transactions contemplated thereby, Natura &Co, Avon or Natura &Co Holding that is different from, or in addition to, that contained in this joint proxy statement/prospectus or in any of the materials that have been incorporated by reference into this joint proxy statement/prospectus. If you are in a jurisdiction where offers to exchange or sell, or solicitations of offers to exchange or purchase, the securities offered by this joint proxy statement/prospectus or the solicitation of proxies pursuant to this joint proxy statement/prospectus is unlawful, or if you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this joint proxy statement/prospectus does not extend to you. The information contained in this joint proxy statement/prospectus is accurate only as of the date of this joint proxy statement/prospectus unless the information specifically indicates that another date applies.

 

The Natura Entities have supplied all information contained in or incorporated by reference into this joint proxy statement/prospectus relating to the Natura Entities, as well as the Unaudited Pro Forma Condensed Financial Information, and Avon has supplied all such information contained in or incorporated by reference into this joint proxy statement/prospectus relating to Avon.

 

 xi

 

Where You Can Find More Information

 

Natura &Co Holding has filed a registration statement on Form F-4, including the Annexes and Exhibits thereto, with the SEC under the Securities Act to register the Natura &Co Holding Shares that will be deposited with the ADS Depositary on behalf of holders of Avon Common Shares or issued to Natura Cosméticos shareholders and holders of Avon Common Shares in connection with the Transaction. This joint proxy statement/prospectus is part of a registration statement that Natura &Co Holding has filed as well as a proxy statement with respect to the Avon Special Meeting of Avon shareholders called to consider the Transaction Proposal. Natura &Co Holding may also file amendments to the registration statement. This joint proxy statement/prospectus does not contain all of the information set forth in the registration statement, and some parts have been omitted in accordance with the rules and regulations of the SEC. You should read the registration statement on Form F-4 and the Exhibits filed with the registration statement as they contain important information about Natura &Co, Avon and Natura &Co Holding as well as the Natura &Co Holding Shares and Natura &Co Holding ADSs. Statements made in this joint proxy statement/prospectus, or in any document incorporated by reference into this joint proxy statement/prospectus, regarding the contents of any contract, agreement or other document are not necessarily complete and each such statement is qualified in its entirety by reference to that contract, agreement or other document filed as an exhibit with the SEC.

 

Avon files annual, quarterly, and current reports, proxy statements and other information with the SEC. You may read and copy any materials filed by Avon with, or furnished by Avon to, the SEC at its Public Reference Room at 100 F Street, N.E., Washington, D.C., 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at +1 (800) SEC-0330. The SEC maintains a website at http://www.sec.gov that contains reports and other information regarding issuers that file electronically with the SEC. The reports and other information filed by Avon with the SEC are also available at Avon's website at www.avonworldwide.com. We have included the web address of the SEC and Avon as inactive textual references only. Except as specifically incorporated by reference into this document, information on those websites is not part of this document.

 

Natura Cosméticos is subject to the informational requirements of the CVM and the B3 and files reports and other information relating to its businesses, financial condition and other matters with the CVM and the B3. You may read these reports, statements and other information about Natura Cosméticos at the public reference facilities maintained by the CVM at Rua Sete de Setembro, 111, 2nd floor, Rio de Janeiro, RJ, Brazil, and Rua XV de Novembro, 275, Centro, city of São Paulo, state of São Paulo, Brazil. Some filings of Natura Cosméticos with the CVM and the B3 are also available at the website maintained by the CVM at http://www.cvm.gov.br and the website maintained by the B3 at http://www.b3.com.br.

 

The public filings of Natura Cosméticos with the CVM are also available to the public free of charge through our internet website at https://natu.infoinvest.com.br/en. You may also request a copy of Natura Cosméticos filings at no cost by contacting Natura Cosméticos at the following address: Avenida Alexandre Colares, No. 1188, Parque Anhanguera, in the city of São Paulo, state of São Paulo 05106-000.

 

You may also request copies of this joint proxy statement/prospectus and other information concerning Natura &Co Holding, without charge, by written or telephonic request directed to Natura &Co Holding at Avenida Alexandre Colares, No. 1188, Sala A17-Bloco A, Parque Anhanguera, in the city of São Paulo, state of São Paulo 05106-000 or by telephone at +55 11 4446-4200. In order for you to receive timely delivery of the documents in advance of the Avon Special Meeting, Natura &Co Holding should receive your request no later than , 2019, which is five business days prior to the Avon Special Meeting.

 

The information included on the websites of the SEC, Natura Cosméticos, Avon or any other entity or that might be accessed through such websites is not included in this joint proxy statement/prospectus or the registration statement and is not incorporated into this joint proxy statement/prospectus or the registration statement by reference unless otherwise specifically noted herein. We are providing the information about how you can obtain certain documents that are incorporated by reference into this joint proxy statement/prospectus at these websites only for your convenience.

 

 xii

Exchange Rates

 

The Brazilian foreign exchange system allows the purchase and sale of foreign currency and the international transfer of reais by any person or legal entity, regardless of the amount, subject to certain regulatory procedures.

 

Since 1999, the Brazilian Central Bank has allowed the real/U.S. dollar exchange rate to float freely, which resulted in increasing exchange rate volatility. Until early 2003, the real declined against the U.S. dollar. Between 2006 and 2008, the real strengthened against the U.S. dollar, except in the most severe periods of the global economic crisis. The real depreciated against the U.S. dollar from mid-2011 to early 2016 due to turmoil in international markets and the Brazilian macroeconomic outlook at the time. In particular, during 2015, due to the poor economic conditions in Brazil, including as a result of political instability, the real has devalued at a rate that is much higher than in previous years. On September 24, 2015, the real fell to the lowest level since the introduction of the currency, at R$4.195 per U.S.$1.00. Overall in 2015, the real depreciated 45.0%, reaching R$3.905 per U.S.$1.00 on December 31, 2015. Beginning in early 2016 through the end of 2016, the real appreciated against the U.S. dollar, primarily as a result of Brazil’s changing political conditions. In 2017 and 2018, the real depreciated 1.5% and 17.1% against the U.S. dollar, respectively. From January 1, 2019, to July 18, 2019, the real appreciated 2.95% against the U.S. dollar. On December 31, 2018, the exchange rate was R$3.875 per U.S.$1.00.

 

The Brazilian Central Bank has intervened in the foreign exchange market in the past to attempt to control instability in foreign exchange rates. We cannot predict whether the Brazilian Central Bank or the Brazilian government will continue to allow the real to float freely or will intervene in the exchange rate market by re-implementing a currency band system or otherwise. There can be no assurance that the real will not depreciate or appreciate further against the U.S. dollar and the real may depreciate or appreciate substantially against the U.S. dollar in the future. Furthermore, Brazilian law provides that, whenever there is a serious imbalance in Brazil’s balance of payments or there are serious reasons to foresee a serious imbalance, temporary restrictions may be imposed on remittances of foreign capital abroad. We cannot assure you that such measures will not be taken by the Brazilian government in the future.

 

The following tables set forth the exchange rate, expressed in reais per U.S. dollar (R$/U.S.$) for the periods indicated, as reported by the Brazilian Central Bank.

 

Year 

Period-end 

Average(1) 

Low 

High 

2014 2.656 2.355 2.197 2.740
2015 3.905 3.339 2.575 4.195
2016 3.259 3.483 3.119 4.156
2017 3.308 3.203 3.051 3.381
2018 3.875 3.680 3.139 4.188

 

Month 

Period-end 

Average(2) 

Low 

High 

October 2018 4.027 3.637 3.758 3.718
November 2018 3.893 3.697 3.787 3.863
December 2018 3.993 3.828 3.888 3.875
January 2019 3.860 3.652 3.742 3.652
February 2019 3.776 3.669 3.724 3.739
March 2019 3.897 3.847 3.776 3.968
April 2019 3.945 3.896 3.835 3.973
May 2019 3.941 3.997 3.934 4.084
June 2019 3.832 3.859 3.823 3.900
July 2019 (through July 18, 2019) 3.749 3.787 3.745 3.856

 

 

Source: Brazilian Central Bank.

 

(1)Represents the average of the exchange rates on the closing of each day during the year.

 

(2)Represents the average of the exchange rates on the closing of each day during the month.

 

 xiii

Questions and Answers About the Transaction and the Avon Special Meeting

 

The following questions and answers are intended to briefly address some commonly asked questions regarding the Merger Agreement, the transactions contemplated thereby and the Avon Special Meeting. These questions and answers only highlight some of the information contained in this joint proxy statement/prospectus and may not contain all of the information that is important to you. Please further refer to the section of this joint proxy statement/prospectus entitled “Summary” and the more detailed information contained elsewhere in this joint proxy statement/ prospectus, the Annexes and Exhibits to this joint proxy statement/prospectus and the documents referred to in this joint proxy statement/prospectus, which you should read carefully and in their entirety. You may obtain the information incorporated by reference into this joint proxy statement/prospectus without charge by following the instructions under the section of this joint proxy statement/prospectus entitled “Where You Can Find More Information.”

 

Questions and Answers About the Transaction

 

What is the proposed transaction, why are Natura Cosméticos and Avon proposing it and what will happen to Avon as a result of the Transaction?

 

On May 22, 2019, Avon and Natura Cosméticos announced a business combination transaction that the boards of directors of Avon and Natura Cosméticos believe represents a compelling opportunity to create a global leader in direct-to-consumer sales.

 

Specifically, Natura &Co Holding, Natura Cosméticos, Avon and certain other parties entered into the Merger Agreement, pursuant to which (i) Natura &Co Holding, which will be an affiliate of Natura Cosméticos upon the conclusion of Founders Contribution, will, after the completion of the Natura Restructuring, hold all issued and outstanding shares of Natura Cosméticos, (ii) Nectarine Merger Sub II, Inc. (“Merger Sub II”), an indirect wholly owned subsidiary of Natura &Co Holding will merge with and into Avon with Avon surviving the merger pursuant to the Merger Agreement and (iii) the direct parent company of Merger Sub II, Nectarine Merger Sub I, Inc. (“Merger Sub I” and, together with Merger Sub II, the “Merger Subs”), itself a subsidiary of Natura &Co Holding, will merge with and into Natura &Co Holding, as a result of which Avon will become a wholly owned direct subsidiary of Natura &Co Holding (collectively, the “Transaction”). Subject to the terms and conditions of the Merger Agreement, the Transaction is expected to become effective in early 2020 (the date on which the Transaction is finally consummated, the “Closing Date”).

 

Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, upon the completion of the Transaction:

 

·each share of common stock, par value U.S.$0.25 per share, of Avon (the “Avon Common Shares”) issued and outstanding immediately prior to the consummation of the Transaction (other than as provided in the Merger Agreement) will be automatically converted into the ultimate right to receive, at the election of the holder thereof, (i) 0.300 validly issued and allotted, fully paid-up American Depository Shares of Natura &Co Holding, each representing one Natura &Co Holding Share (“Natura &Co Holding ADSs”) against the deposit of the requisite number of 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) 0.300 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; and

 

·each share of Series C Preferred Stock, par value U.S.$1.00 per share, of Avon (the “Avon Preferred Shares”) issued and outstanding immediately prior to the consummation of the Transaction (other than as provided in the Merger Agreement) will be automatically converted into the right to receive an amount in cash without interest equal to the Stated Value (as defined in Avon’s certificate of incorporation) of such Avon Preferred Share. As of the Record Date, the Stated Value was         .

 

If the Transaction is completed, Avon and Natura Cosméticos will each become direct wholly owned subsidiaries of Natura &Co Holding and Avon will no longer be an independent, U.S. publicly traded corporation. Based on the number of Natura Cosméticos Shares and securities convertible into Natura Cosméticos Shares and the

 

 1

number of Avon Common Shares and securities convertible into Avon Common Shares, in each case outstanding as of         , it is anticipated that, immediately following completion of the Transaction, former holders of Avon Common Shares will own approximately 24% of Natura &Co Holding on a fully diluted basis and former Natura Cosméticos shareholders will own approximately 76% of Natura &Co Holding on a fully diluted basis.

 

In the course of reaching their decisions to approve the Merger Agreement, the Transaction and all of the other transactions contemplated by the Merger Agreement, the board of directors of each of Avon and Natura Cosméticos considered a number of important factors in their separate deliberations. For more details on these factors, see the sections of this joint proxy statement/prospectus entitled “The Transaction—Recommendation of the Avon Board of Directors; Avon’s Reasons for the Transaction” and “The Transaction—Natura Cosméticos’s Reasons for the Proposed Transaction.”

 

It is important that your shares be represented and voted at the Avon Special Meeting. You can submit a proxy to vote your shares electronically via the Internet, by telephone or by completing and returning the enclosed proxy card or voting instruction card in the postage-paid envelope provided. If your shares are held in a stock brokerage account or by a bank, broker or other nominee, follow the instructions on the form that you receive from them.

 

What is this document?

 

This document, which we refer to as the joint proxy statement/prospectus:

 

·serves as the proxy statement through which Avon will solicit proxies to seek to obtain the Avon Shareholder Approval;

 

·informs holders of Avon Shares of the upcoming Avon Special Meeting at which Avon shareholders will vote on, among other things, the Transaction Proposal, and provides details of the Merger Agreement and the consideration Avon shareholders will receive upon completion of the Transaction;

 

·serves as the prospectus by which Natura &Co Holding will issue Natura &Co Holding Shares to Avon common shareholders in connection with the Transaction; and

 

·provides Avon shareholders with important details about Natura &Co Holding and their rights as potential holders of Natura &Co Holding Shares or Natura &Co Holding ADSs.

 

Why did I receive this joint proxy statement/prospectus and proxy card?

 

You are receiving this joint proxy statement/prospectus because you were a shareholder of record of Avon on         , the record date for the Avon Special Meeting (the “Record Date”), and you are accordingly entitled to vote at the Avon Special Meeting. This document serves as both a proxy statement of Avon used to solicit proxies to obtain the necessary shareholder approval of the Transaction Proposal at the Avon Special Meeting, and as a prospectus of Natura &Co Holding used to offer Natura &Co Holding Shares in exchange for Avon Shares pursuant to the terms of the Merger Agreement. In order to complete the Transaction, among other things, Avon shareholders must approve the Transaction Proposal. Avon is holding the Avon Special Meeting to ask its shareholders to vote on the Transaction Proposal. At the Avon Special Meeting, Avon shareholders will also be asked to vote on the Advisory Compensation Proposal and the Adjournment Proposal. This document contains important information about the Transaction and the Avon Special Meeting, and you should read it carefully and in its entirety. The enclosed voting materials allow Avon shareholders to vote their shares by proxy without attending the Avon Special Meeting in person.

 

Who is Natura &Co?

 

We are a global cosmetics group comprising three iconic brands and Brazil’s largest multinational cosmetics, hygiene and beauty company in terms of market share, as of December 2018, according to Euromonitor International, with operations in Asia, Europe, North America, Oceania, and South America. We believe we are a leading developer, manufacturer, distributor and seller of self-branded cosmetics, fragrances and toiletries in Brazil. Also, we believe our distinctive corporate culture, which values our relationships with our customers, our independent beauty consultants, our suppliers and others, and rests on a commitment to generate positive economic, social and environmental impact, has been fundamental to our growth.

 

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Our principal place of business is located at Avenida Alexandre Colares, no. 1188, Parque Anhanguera, São Paulo, São Paulo 05106-000, Brazil, telephone: +55 11 4446-4200. Our website address is: https://natu.infoinvest.com.br/en.

 

See also the sections of this joint proxy statement/prospectus entitled “Selected Financial Data of Natura &Co,” “Information about Natura &Co,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Natura &Co” and “Management and Compensation of Natura &Co.”

 

Whose proxies are being solicited and who is entitled to vote at the Avon Special Meeting?

 

Only Avon shareholders are entitled to vote at the Avon Special Meeting and, as a result, only Avon shareholders’ proxies are being solicited through this joint proxy statement/prospectus. Avon is not soliciting any proxies or votes from Natura Cosméticos or Natura &Co Holding shareholders through this joint proxy statement/prospectus.

 

The Avon board of directors has fixed the close of business on          as the Record Date for determination of Avon shareholders entitled to receive notice of, and to vote at, the Avon Special Meeting. Only holders of record of outstanding Avon Shares at the close of business on the Record Date are entitled to receive notice of, and to vote at, the Avon Special Meeting.

 

If you are a Natura Cosméticos or Natura &Co Holding shareholder and not an Avon shareholder, and you have received or gained access to this joint proxy statement/prospectus, you should not treat it as any solicitation of your proxy, vote or support on any matter. If you are both an Avon shareholder and a Natura Cosméticos or Natura &Co Holding shareholder, you should treat this joint proxy statement/prospectus as a solicitation of your proxy only with respect to the Avon Shares you owned of record as of the close of business on the Record Date and you should not treat it as any solicitation of your proxy, vote or support on any matter with respect to your Natura Cosméticos Shares or Natura &Co Holding Shares.

 

Where and when will the Avon Special Meeting be held?

 

TIME AND DATE:         , 2019, at          a.m./p.m.          Time
   
PLACE:  
   
ITEMS OF BUSINESS:

The Transaction Proposal (a proposal to adopt the Merger Agreement).

 

The Advisory Compensation Proposal (a proposal to approve, by non-binding, advisory vote, the compensation that may become payable to Avon’s named executive officers in connection with the Transaction).

 

  The Adjournment Proposal (a proposal to approve one or more adjournments of the Avon Special Meeting to another time or place, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Avon Special Meeting to approve the Transaction Proposal).
   
RECORD DATE:         , 2019
   
PROXY VOTING: It is important that your shares be represented and voted at the Avon Special Meeting. You can submit a proxy to vote your shares electronically via the Internet, by telephone or by completing and returning the enclosed proxy card or voting instruction card in the postage-paid envelope provided. If your shares are held in a stock brokerage account or by a bank, broker or other nominee, follow the instructions on the form that you receive from them.

 

For additional information about the Avon Special Meeting, see the section of this joint proxy statement/prospectus entitled “The Avon Special Meeting.”

 

What matters will be voted on at the Avon Special Meeting?

 

The following proposals will be voted on at the Avon Special Meeting:

 

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(1)Avon shareholders will be asked to vote on the Transaction Proposal;

 

(2)Avon shareholders will be asked to vote on the Advisory Compensation Proposal; and

 

(3)Avon shareholders also will be asked to vote on the Adjournment Proposal.

 

Neither the approval of the Advisory Compensation Proposal nor the approval of the Adjournment Proposal is a condition to Avon’s, Natura Cosméticos’s or Natura &Co Holding’s obligations to consummate the Transaction.

 

What is the recommendation of the board of directors of Avon as to each proposal that may be voted on at the Avon Special Meeting?

 

After careful consideration, the Avon board of directors has (i) approved, adopted and declared advisable the Merger Agreement and all of the transactions contemplated by the Merger Agreement, (ii) declared that it is fair to and in the best interests of Avon and its shareholders that Avon enter into the Merger Agreement and consummate the transactions contemplated by the Merger Agreement and (iii) directed that the Merger Agreement be submitted to the shareholders of Avon and recommended that the shareholders of Avon vote their Avon Shares in favor of the adoption of the Merger Agreement at the Avon Special Meeting.

 

Accordingly, the Avon board of directors recommends that Avon shareholders vote:

 

1.       “FOR” the Transaction Proposal;

 

2.       “FOR” the Advisory Compensation Proposal; and

 

3.        “FOR” the Adjournment Proposal.

 

For additional information, see the section of this joint proxy statement/prospectus entitled “The Transaction—Recommendation of the Avon Board of Directors; Avon’s Reasons for the Transaction.”

 

Does my vote matter?

 

Yes, your vote is very important. Even if you plan to attend the Avon Special Meeting in person, please vote by Internet, by telephone or by mail as soon as possible by following the instructions in this joint proxy statement/prospectus to ensure your votes are counted at the Avon Special Meeting. Failures to vote, votes to abstain and failures to instruct your bank, broker or other nominee to vote will have the same effect as votes “AGAINST” the approval of the Transaction Proposal.

 

The Transaction cannot be completed unless the Transaction Proposal is approved. Approval of the Transaction Proposal requires the affirmative vote of the holders of two-thirds of the outstanding Avon Shares entitled to vote on the matter at the Avon Special Meeting, voting together as a single class on an as-converted basis. Votes to abstain will have the same effect as votes “AGAINST” the approval of the Transaction Proposal.

 

If you fail to submit a valid proxy, if you fail to vote in person, or if you fail to instruct your bank, broker or other nominee to vote at the Avon Special Meeting, it will have the same effect as a vote “AGAINST” the approval of the Transaction Proposal.

 

Approval of each of the Advisory Compensation Proposal and the Adjournment Proposal requires the affirmative vote of a majority of votes cast thereon, voting together as a single class on an as-converted basis. “Votes cast” means the votes actually cast “FOR” or “AGAINST” a particular proposal, whether in person or by proxy. An abstention will not constitute a vote cast. If you fail to submit a valid proxy or to vote in person at the Avon Special Meeting or if you vote to abstain, it will have no effect on the approval of the Advisory Compensation Proposal or the Adjournment Proposal.

 

What constitutes a quorum at the Avon Special Meeting?

 

The presence at the meeting, in person or by proxy, of the holders of a majority of the Avon Shares outstanding as of the close of business on the Record Date and entitled to vote at the Avon Special Meeting will constitute a quorum for the Avon Special Meeting. Abstentions and broker non-votes will be counted for purposes of establishing a quorum at the Avon Special Meeting. A quorum is necessary to transact business at the Avon Special

 

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Meeting. At any adjourned meeting at which a quorum is present, any business may be transacted that might have been transacted at the original meeting. If a quorum is not present, the Avon Special Meeting may be adjourned to allow additional time to solicit proxies or votes. When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of any shareholders.

 

What vote of the Avon shareholders is required to approve the proposals presented at the Avon Special Meeting?

 

Approval of the Transaction Proposal requires the affirmative vote of the holders of two-thirds of the outstanding Avon Shares entitled to vote on the matter at the Avon Special Meeting, voting together as a single class on an as-converted basis. Votes to abstain will have the same effect as votes “AGAINST” the approval of the Transaction Proposal.

 

Approval of each of the Advisory Compensation Proposal and the Adjournment Proposal requires the affirmative vote of a majority of votes cast thereon, voting together as a single class on an as-converted basis. “Votes cast” means the votes actually cast “FOR” or “AGAINST” a particular proposal, whether in person or by proxy. An abstention will not constitute a vote cast. If you fail to submit a valid proxy or to vote in person at the Avon Special Meeting or if you vote to abstain, it will have no effect on the approval of the Advisory Compensation Proposal and the Adjournment Proposal.

 

At the close of business on the Record Date, there were approximately          Avon Common Shares outstanding and entitled to vote for an aggregate vote of approximately          (or one vote per share) and 435,000 shares of Avon Preferred Shares outstanding and entitled to vote for an aggregate vote of          (on an as-converted basis). Holders of Avon Common Shares and Avon Preferred Shares will vote together as a single class on all matters being presented in this joint proxy statement/prospectus for an aggregate of, as of the close of business on the Record Date, approximately          votes.

 

For additional information, see the section of this joint proxy statement/prospectus entitled “The Avon Special Meeting.”

 

What will happen if the proposals to be considered at the Avon Special Meeting are not approved?

 

Avon, Natura Cosméticos and Natura &Co Holding will not be able to complete the Transaction if Avon shareholders do not approve the Transaction Proposal.

 

Completion of the Transaction is not dependent on Avon shareholder approval of the Advisory Compensation Proposal or the Adjournment Proposal.

 

What will Avon shareholders receive in the Transaction?

 

Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, upon the completion of the Transaction:

 

·each Avon Common Share issued and outstanding immediately prior to the consummation of the Transaction (other than as provided in the Merger Agreement) will be automatically converted into the ultimate right to receive, at the election of the holder thereof, (i) 0.300 validly issued and allotted, fully paid-up Natura &Co Holding ADSs against the deposit of the requisite number of 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) 0.300 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; and

 

·each Avon Preferred Share issued and outstanding immediately prior to the consummation of the Transaction (other than as provided in the Merger Agreement) will be automatically converted into the right to receive an amount in cash without interest equal to the Stated Value (as defined in Avon’s certificate of incorporation) of such Avon Preferred Share. As of the Record Date, the Stated Value was         .

 

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What percentage ownership will former Natura Cosméticos shareholders and Avon shareholders hold in Natura &Co following completion of the Transaction?

 

If the Transaction is completed, Avon and Natura Cosméticos will each become wholly owned subsidiaries of Natura &Co Holding. Based on the number of Natura Cosméticos Shares and securities convertible into Natura Cosméticos Shares and the number of Avon Common Shares and securities convertible into Avon Common Shares, in each case issued and outstanding as of May 22, 2019, it is anticipated that, immediately following completion of the Transaction, former holders of Avon Common Shares will own approximately 24% of Natura &Co Holding on a fully diluted basis and former Natura Cosméticos shareholders will own approximately 76% of Natura &Co Holding on a fully diluted basis.

 

What interests do directors, board members and executive officers of Avon have in the Transaction?

 

Avon shareholders should be aware that Avon directors and executive officers may have interests in the Transaction that are different from, or in addition to, the interests of Avon shareholders. These interests may include, but are not limited to, the continued engagement and/or employment, as applicable, of certain Avon directors and executive officers, the engagement of certain Avon directors as directors on the Natura &Co Holding board of directors, enhanced severance for certain Avon executive officers upon a qualifying termination of employment in connection with the Transaction, the payment of compensation previously deferred by certain Avon directors and executive officers and the indemnification of former Avon directors and executive officers by a subsidiary of Natura &Co Holding. These interests also include the treatment in the Transaction of equity awards held by Avon directors and executive officers, including the accelerated vesting and cash-out of certain awards in connection with the Transaction or in connection with a subsequent qualifying termination of employment. As of the date of this filing, there are no specific employment, equity or other agreements, arrangements or understandings between any of Avon’s directors or executive officers and Natura Cosméticos, Natura &Co Holding and their respective subsidiaries.

 

Avon’s board of directors was aware of the potentially differing interests of Avon directors and executive officers and considered them, among other matters, in reaching its decision to approve and adopt the Merger Agreement and the Transaction, and to recommend that Avon shareholders vote in favor of the Transaction Proposal.

 

These interests are described in more detail under the section of this joint proxy statement/prospectus entitled “Management and Compensation of Avon—Interests of Avon’s Directors and Executive Officers in the Transaction.” Avon’s shareholders should take these interests into account in deciding whether to vote “FOR” the Transaction Proposal.

 

For further information with respect to arrangements between Avon and its executive officers and directors, as well as arrangements for the directors to be selected to serve on the board of directors of Natura &Co Holding, see the information included under the section of this joint proxy statement/prospectus entitled “Interests of Certain Persons in the Transaction.”

 

What interests do the individuals designated by Natura Cosméticos to serve on the Natura &Co Holding board of directors and the officers of Natura Cosméticos who are currently anticipated to serve as executive officers of Natura &Co Holding have in the Transaction?

 

Avon shareholders should be aware that the individuals designated by Natura Cosméticos to serve on the Natura &Co Holding board of directors and certain officers of Natura Cosméticos who are currently anticipated to serve as executive officers of Natura &Co Holding after the closing may have interests in the Transaction that are different from, or in addition to, the interests of the Avon and Natura Cosméticos shareholders. These interests may include, but are not limited to, positions on the Natura &Co Holding board of directors or continued employment with Natura &Co Holding and/or its subsidiaries after the closing, as the case may be, enhanced severance upon a qualifying termination of employment in connection with the Transaction, and the treatment in the Transaction of equity awards, including the accelerated vesting of certain awards in connection with a qualifying termination of employment.

 

For further information with respect to arrangements between Natura &Co Holding and the directors of Natura &Co Holding designated by Natura Cosméticos and the officers of Natura Cosméticos who are currently anticipated

 

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to serve as executive officers of Natura &Co Holding after the Closing Date, see the information included under the section of this joint proxy statement/prospectus entitled “Interests of Certain Persons in the Transaction.”

 

If the Transaction is completed, will Natura &Co Holding ADSs be listed for trading?

 

Yes. The Natura &Co Holding ADSs which Avon common shareholders will receive in the Transaction are expected to be listed on the NYSE on the Closing Date. Completion of the Transaction is subject to the Natura &Co Holding ADSs being approved for listing on the NYSE, subject to official notice of issuance. Natura &Co Holding ADSs received by Avon common shareholders in the Transaction are expected to be freely transferable under applicable securities laws.

 

When do you expect the Transaction to be completed?

 

The Transaction is expected to close in early 2020, subject to the approvals of Natura Cosméticos and Avon shareholders, regulatory approvals and consents and other customary closing conditions.

 

Has Natura Cosméticos’s board of directors approved and recommended the Merger Agreement?

 

Yes. Natura Cosméticos’s board of directors has, upon the terms and subject to the conditions set forth in the Merger Agreement, and in accordance with the laws of Brazil, approved the Merger Agreement.

 

Will Natura &Co Holding Shares acquired in the Transaction receive a dividend?

 

Any future Natura &Co Holding dividends will remain subject to approval by the Natura &Co Holding board of directors and available distributable reserves of Natura &Co Holding.

 

After the closing of the Transaction, as a holder of Natura &Co Holding ADSs or Natura &Co Holding Shares, former holders of Avon Common Shares that hold such Natura &Co Holding ADSs or Natura &Co Holding Shares on the record date associated with a dividend distribution are expected to receive the same dividend per Natura &Co Holding ADS or Natura &Co Holding Share as all other holders of Natura &Co Holding Shares that hold Natura &Co Holding Shares as of the record date associated with such dividend distribution. For further information on dividends, see the section of this joint proxy statement/prospectus entitled “Description of Natura &Co Holding Shares and Natura &Co Holding By-Laws—Allocation of Net Income.”

 

What happens if the Transaction is not completed?

 

If Avon shareholders do not approve the Transaction Proposal or if the Transaction is not completed for any other reason, Natura Cosméticos and Avon will remain independent public companies and Natura Cosméticos Shares and Avon Shares will continue to be listed and traded on the B3 and the NYSE, respectively. Avon will continue to be registered under the Exchange Act and file periodic reports with the SEC. If the Merger Agreement is terminated under certain specified circumstances, Natura Cosméticos or Natura &Co Holding may be required to pay Avon a termination fee of U.S.$133 million or U.S.$242 million, depending on the circumstances. If the Merger Agreement is terminated under certain other specified circumstances, Avon may be required to pay Natura Cosméticos a termination fee of U.S.$78.6 million.

 

For further information on termination fees and expense reimbursement, see the section of this joint proxy statement/prospectus entitled “The Transaction Documents—The Merger Agreement—Termination Fees.”

 

What regulatory approvals are needed to complete the Transaction?

 

Closing of the Transactions is subject to the receipt of certain regulatory approvals specified in the Merger Agreement. This includes approval (or deemed approval by expiration of the applicable waiting period) by the Administrative Council of Economic Defense of Brazil (“CADE”) and by certain other foreign regulators as required under the terms of the Merger Agreement having been obtained or received.

 

For further details on regulatory approvals, see the section of this joint proxy statement/prospectus entitled “The Transaction—Regulatory Approvals Required for the Transaction.”

 

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What other conditions must be satisfied to complete the Transaction?

 

In addition to obtaining certain required regulatory approvals, closing of the Transaction is subject to certain additional conditions, including, among others, customary conditions relating to (i) obtaining the Avon Shareholder Approval in accordance with applicable law; (ii) approval of the Natura Restructuring and Mergers, including the issuance of the Natura &Co Holding Shares underlying the Natura &Co Holding ADSs constituting Common Stock Consideration and the other transactions contemplated by the Merger Agreement by the affirmative vote of the Founders, which will hold more than half of the voting shares of Natura &Co Holding and Natura Cosméticos in accordance with applicable law; (iii) consummation of the Natura Restructuring in accordance with the terms of the Merger Agreement; (iv) the effectiveness of this joint proxy statement/prospectus; (v) the approval of the listing of the Natura &Co Holding ADSs on the NYSE, subject to official notice of issuance; (vi) the approval of the listing of the Natura &Co Holding Shares on the B3 stock exchange in Brazil under the Novo Mercado segment, subject to official notice of issuance; (vii) the parties’ representations and warranties being true and correct (subject to certain exceptions); and (viii) the parties having performed in all material respects their respective obligations under the Merger Agreement.

 

For further details on closing conditions, see the section of this joint proxy statement/prospectus entitled “The Transaction Documents—The Merger Agreement—Conditions to the Mergers.”

 

What are the U.S. federal income tax consequences of the Transaction to holders of Avon Common Shares?

 

The Transaction is intended to qualify as a transaction described in Section 351(a) of the Internal Revenue Code of 1986, as amended (the “Code”), generally with no gain or loss recognition to U.S. holders of Avon Common Shares for U.S. federal income tax purposes (except with respect to any cash received in lieu of fractional Natura &Co Holding Shares or Natura &Co Holding ADSs), and such U.S. holders are generally not expected to recognize gain in the Transaction as a result of the application of Section 367(a) of the Code. However, this tax treatment is not free from doubt, and there are factual and legal uncertainties concerning these conclusions. If the U.S. Internal Revenue Service (the “IRS”) were to challenge this tax treatment and such challenge were to be sustained, U.S. holders and certain non-U.S. holders of Avon Common Shares would recognize gain (and might not be allowed to recognize loss) based on the amount such a holder realizes in the Transaction.

 

Non-U.S. holders of Avon Common Shares will generally not be subject to U.S. federal income tax on any gain recognized in the Transaction. For additional information on the tax consequences of the Transaction to holders of Avon Common Shares, see “Material Tax Considerations—Material U.S. Federal Income Tax Considerations.”

 

Tax matters are very complicated, and the tax consequences of the Transaction to holders of Avon Common Shares may depend on each holder’s particular facts and circumstances. Holders of Avon Common Shares are urged to consult their own tax advisors to understand fully the tax consequences to them of the Transaction.

 

Are Avon common shareholders entitled to exercise appraisal, dissenters’ or similar rights?

 

No, under the NYBCL, Avon common shareholders are not entitled to exercise any appraisal or dissenters’ rights in connection with the Transaction. The NYBCL provides for appraisal rights under certain circumstances. Among other exceptions, appraisal rights are not available to a shareholder for the shares of any class or series of stock, which shares or depository receipts in respect thereof, at the record date fixed to determine the shareholders entitled to receive notice of the meeting of shareholders to vote upon the plan of merger or consolidation, were listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc.

 

What will happen to outstanding Avon equity compensation awards in the Transaction?

 

At the effective time of the Transaction:

 

·each outstanding award of restricted stock units with respect to Avon Common Shares that is subject solely to time-based vesting, (“Avon RSUs”), will be converted into an award of restricted stock units denominated in Natura &Co Holding Shares (“Natura &Co Holding RSUs”) (rounded up to the nearest number of whole shares), equal to (A) the number of Avon Common Shares subject to such award of Avon RSUs immediately prior to the effective time of the Transaction multiplied by (B) the Exchange Ratio, and

 

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the terms and conditions (including service-based vesting conditions) applicable to such award of Avon RSUs shall continue in full force and effect with respect to such award of Natura &Co Holding RSUs;

 

·each outstanding award of performance-contingent restricted stock units with respect to Avon Common Shares (“Avon PSUs”) will be converted into an award of restricted stock units denominated in Natura &Co Holding Shares (“Natura &Co Holding PSUs”) (rounded up to the nearest number of whole shares), that is subject solely to time-based vesting equal to (A) the number of Avon Common Shares subject to such award of Avon PSUs immediately prior to the effective time of the Transaction (if applicable performance goals were deemed to be attained at target level) multiplied by (B) the Exchange Ratio, and the terms and conditions (including service-based vesting conditions but not performance-based vesting conditions) applicable to such award of Avon PSUs shall continue in full force and effect with respect to such award of Natura &Co Holding PSUs;

 

·each award of restricted Avon Common Shares (“Avon Restricted Stock”) will be converted into an award denominated in Natura &Co Holding Shares or Natura &Co Holding ADSs against the deposit of the requisite number of Natura &Co Holding Shares (“Natura &Co Holding Restricted Stock”), as applicable, equal to (A) the number of Avon Common Shares subject to such award of Avon Restricted Stock immediately prior to the effective time of the Transaction multiplied by (B) the Exchange Ratio, and the terms and conditions (including service-based vesting conditions) applicable to such award of Avon Restricted Stock shall continue in full force and effect with respect to such award of Natura &Co Holding Restricted Stock;

 

·each outstanding option to purchase Avon Common Shares (an “Avon Stock Option”), whether or not then vested or exercisable, will automatically be canceled in exchange for the right to receive an amount in cash, without interest, equal to (A) the number of Avon Common Shares underlying such Avon Stock Option immediately prior to the effective time of the Transaction multiplied by (B) the excess, if any, of the per share cash-out price over the exercise price per share of such Avon Stock Option, where (i) the “per share cash out price” is the closing price of an Avon Common Share on the NYSE on the Closing Date and if there are no trades on the Closing Date, on the day on which a trade occurred next preceding the Closing Date and (ii) no amount will be payable upon cancellation of an Avon Stock Option with an exercise price per share that is greater than the per share cash-out price; and

 

·each outstanding stock appreciation right with respect to Avon Common Shares (an “Avon SAR”), whether or not then vested or exercisable, will automatically be canceled in exchange for the right to receive an amount in cash, without interest, equal to (A) the number of Avon Common Shares subject to such Avon SAR immediately prior to the effective time of the Transaction multiplied by (B) the excess, if any, of the per share cash-out price over the exercise price per share of such Avon SAR, and no amount will be payable upon cancellation of an Avon SAR with an exercise price per share that is greater than the per share cash-out price.

 

Any equity award granted after May 22, 2019 shall be subject to pro-rata vesting (as described in the applicable award agreement) upon certain terminations of the award holder’s employment.

 

All amounts payable in respect of equity-based awards will be subject to required withholding taxes.

 

What will happen to outstanding Avon Cash Long-Term Incentive Awards?

 

Under Avon’s Long-Term Cash Bonus Plan, if within two years after a change in control transaction, such as the Transaction, an award holder’s employment is terminated by Avon without cause or by the award holder due to “good reason” (each as defined below in the section of this joint proxy statement/prospectus entitled “Management and Compensation of Avon—Interests of Avon’s Directors and Executive Officers in the Transaction—Treatment of Equity and Equity-Based Awards”), such award holder’s Avon Cash LTI Awards that are subject solely to time-based vesting (as would be the case with respect to Avon Cash LTI Awards that are outstanding immediately after the Transaction) will become fully vested and will be paid out within sixty days after such termination of employment.

 

At the effective time of the Transaction:

 

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·each outstanding cash long-term incentive award that is granted under Avon’s Long-Term Cash Bonus Plan and that is subject solely to time-based vesting, (an “Avon Cash LTI Award”) will continue to remain outstanding after the Transaction, subject to the terms of the Long-Term Cash Bonus Plan;

 

·each outstanding performance-contingent cash long-term incentive award that is granted under the Avon Long-Term Cash Bonus Plan (“Avon Performance Cash LTI Award”) will be converted into an award that is based solely on time-based vesting assuming, for purposes of determining the amount payable in respect of such Avon Performance Cash LTI Award after such conversion, that applicable performance goals have been attained, as of the end of the applicable performance period, at the level at which such performance goals have been attained as of the Closing Date; and

 

·any payments in respect of Avon Cash LTI Awards and Avon Performance Cash LTI Awards that are granted as part of Avon’s 2019 long-term incentive program (or that are granted after the signing of the Merger Agreement with a payment calculation methodology that is similar to that of the Avon Cash LTI Awards and Avon Performance Cash LTI Awards, as applicable, granted under Avon’s 2019 long-term incentive program) will be equal to (x) the grant date value of such award (or, in the case of any Avon Performance Cash LTI Award, the value of such award determined, using the methodology set forth in the preceding bullet) multiplied by (y) a fraction, the numerator of which is the greater of (1) the NYSE closing price of an Avon Common Share on the day immediately prior to the Closing Date and (2) an amount equal to U.S.$13.91 multiplied by the Exchange Ratio, and the denominator of which is the closing price of an Avon Common Share on the grant date; and

 

Any Avon Cash LTI Award granted after May 22, 2019 shall be subject to pro-rata vesting (as described in the applicable award agreement) upon certain terminations of the award holder’s employment.

 

All amounts payable in respect of Avon Cash LTI Awards and Avon Performance Cash LTI Awards will be subject to required withholding taxes.

 

Do any of Avon’s directors or executive officers have any interests in the Transaction that are different from, or in addition to, my interests as a shareholder?

 

In considering the proposals to be voted on at the Avon Special Meeting, you should be aware that Avon’s directors and executive officers have financial interests in the Transaction that may be different from, or in addition to, your interests as a shareholder. The members of the Avon board of directors were aware of and considered these interests in reaching the determination to adopt the Merger Agreement and recommend that the holders of Avon Shares vote their Avon Shares in favor of adoption of the Merger Agreement. These interests may include:

 

·(i) each award of Avon Stock Options and Avon SARs outstanding at the effective time of the Transaction will be canceled at the effective time of the Transaction in exchange for the right to receive an amount in cash and (ii) each award of Avon RSUs, Avon PSUs and Avon Restricted Stock will be converted at the effective time of the Transaction into an unvested award representing a number of Natura &Co Holding Shares (or, in the case of Avon Restricted Stock, Natura &Co Holding Shares or Natura &Co Holding ADSs, as applicable) that will generally be subject to same terms and conditions as the related award of Avon RSUs, Avon PSUs or Avon Restricted Stock (including service-based vesting conditions but not performance-based vesting conditions) (in each case as described below in the section of this joint proxy statement/prospectus entitled “Management and Compensation of Avon—Treatment of Equity and Equity-Based Awards”);

 

·each of Avon’s executive officers (other than one executive officer located in the U.K.) participates in the Avon CIC Policy that provides severance and other benefits in the case of a “qualifying termination” of employment following a change of control, which will include the completion of the Transaction (as described below in the section of this joint proxy statement/prospectus entitled “Management and Compensation of Avon—Interests of Avon’s Directors and Executive Officers in the Transaction—Severance Entitlements”);

 

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·one executive officer located in the U.K. is entitled to severance payments pursuant to U.K. local policy and practice and termination-related payments pursuant to the executive’s employment agreement upon certain terminations of employment, including following a change in control transaction such as the Transaction (as described below in the section of this joint proxy statement/prospectus entitled “Management and Compensation of Avon—Interests of Avon’s Directors and Executive Officers in the Transaction—Severance Entitlements”);

 

·cash long-term incentive awards (“Avon Cash LTI Awards”) granted to executive officers will continue to remain outstanding after the Transaction generally subject to the same terms and conditions, except that Avon Cash LTI Awards subject to performance-based vesting will be converted into awards subject only to time-based vesting assuming, for purposes of determining the amount payable in respect of such Avon Performance Cash LTI Awards after such conversion, that applicable performance goals will be attained, as of the end of the applicable performance period, at the level at which such performance goals have been attained as of the closing (as described below in the section of this joint proxy statement/prospectus entitled “Management and Compensation of Avon—Interests of Avon’s Directors and Executive Officers in the Transaction—Avon Cash Long-Term Incentive Awards”);

 

·certain sign-on cash awards will accelerate and become payable upon a “qualifying termination” of employment, including in connection with a change in control transaction such as the Transaction (as described below in the section of this joint proxy statement/prospectus entitled “Management and Compensation of Avon—Interests of Avon’s Directors and Executive Officers in the Transaction—Sign-On Cash Awards”);

 

·account balances under Avon’s Deferred Compensation Plan will be distributed in the form of a lump-sum cash payment within 90 days after the effective time of the Transaction (as described below in the section of this joint proxy statement/prospectus entitled “Management and Compensation of Avon—Interests of Avon’s Directors and Executive Officers in the Transaction—Executive Deferred Compensation Plan”);

 

·executive officers who are participants in Avon’s Benefit Restoration Plan will be eligible to receive a distribution of their accrued benefits thereunder, and such benefits may be enhanced pursuant to Avon’s CIC Policy in the event that a participating executive officer incurs a “qualifying termination” of employment following a change in control transaction such as the Transaction (as described below in the section of this joint proxy statement/prospectus entitled “Management and Compensation of Avon—Interests of Avon’s Directors and Executive Officers in the Transaction—Executive Deferred Compensation Plan”);

 

·account balances under the Director Deferred Compensation Plan will be distributed if a director’s service is terminated at the effective time of the Transaction (as described below in the section of this joint proxy statement/prospectus entitled “Management and Compensation of Avon—Interests of Avon’s Directors and Executive Officers in the Transaction—Director Deferred Compensation Plan”);

 

·executive officers who are covered by a relocation letter are eligible for relocation allowances payable in connection with repatriation to the executive’s home country upon termination of employment by Avon other than for cause at or following the effective time of the Transaction if such termination is within 24 months of the executive’s commencement of employment with Avon (as described below in the section of this joint proxy statement/prospectus entitled “Management and Compensation of Avon—Interests of Avon’s Directors and Executive Officers in the Transaction—Repatriation Benefits”); and

 

·Avon’s directors and executive officers are entitled to continued indemnification and insurance coverage under the Merger Agreement (as described below in the section of this joint proxy statement/prospectus entitled “Management and Compensation of Avon—Interests of Avon’s Directors and Executive Officers in the Transaction—Director and Executive Officer Indemnification”).

 

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Please see the section of this joint proxy statement/prospectus entitled “Management and Compensation of Avon—Interests of Avon’s Directors and Executive Officers in the Merger” for additional information about these financial interests.

 

Questions and Answers About the Avon Special Meeting

 

Who is soliciting my proxy?

 

Avon’s board of directors is soliciting your proxy for use at the Avon Special Meeting. It is expected that the solicitation will be made by mail, but proxies may also be solicited personally, by advertisement, by facsimile, on the Internet, by electronic means or by telephone, by directors, officers or employees of Avon without special compensation or by Avon’s proxy solicitor, Innisfree M&A Incorporated. This joint proxy statement/prospectus describes the voting procedures and the proposals to be voted on at the Avon Special Meeting.

 

Who will solicit and pay the cost of soliciting proxies?

 

Avon has engaged Innisfree M&A Incorporated to assist in the solicitation of proxies and provide related advice and informational support in connection with the Avon Special Meeting, for a fee that is not expected to exceed U.S.$         and the reimbursement of customary expenses. All such fees and expenses will be borne by Avon. Avon also may reimburse banks, brokers or other nominees or their respective agents for their expenses in forwarding proxy materials to beneficial owners of Avon Shares. Avon’s directors, officers and employees also may solicit proxies by telephone, by facsimile, by mail, on the Internet or in person. They will not be paid any additional amounts for soliciting proxies.

 

If I am a shareholder of record of Avon Shares, how do I vote?

 

If your Avon Shares are registered directly in your name with the transfer agent of Avon, Computershare Trust Company, N.A., you are considered, with respect to those Avon Shares, the shareholder of record. If you are a shareholder of record, this joint proxy statement/prospectus and the enclosed proxy card have been sent directly to you by Avon.

 

If you are a shareholder of record, you may have your Avon Shares voted on matters presented at the Avon Special Meeting:

 

(i)by telephone or over the Internet — by accessing the telephone number or Internet website specified on the enclosed proxy card. The control number provided on your proxy card is designed to verify your identity when voting by telephone or by Internet. Proxies delivered over the Internet or by telephone must be submitted by          Eastern time on         , 2019. Please be aware that if you vote by telephone or over the Internet, you may incur costs such as telephone and Internet access charges for which you will be responsible;

 

(ii)by mail — by completing, signing, dating and returning the enclosed proxy card in the postage-paid envelope provided, which must be received before the polls close at the Avon Special Meeting; or

 

(iii)in person — by attending the Avon Special Meeting and casting your vote there. Registered shareholders who attend the Avon Special Meeting may vote their shares in person even if they previously have voted their shares.

 

If your shares are held in the name of a bank, broker or other nominee, you are considered the beneficial owner of Avon Shares held in “street name”. If you are a beneficial owner of Avon Shares, please follow the instructions you receive from your nominee on how to vote your shares. Those instructions will identify which of the above choices are available to you in order to have your shares voted. Please note that if you are a beneficial owner and wish to vote in person at the Avon Special Meeting, you must provide a legal proxy issued in your name from the bank, broker or other nominee that holds your shares at the Avon Special Meeting.

 

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If I am a beneficial owner of Avon Shares held in street name, how do I vote?

 

If your Avon Shares are held through a bank, broker or other nominee, you are considered the beneficial owner of Avon Shares held in “street name”. In that case, this joint proxy statement/prospectus has been forwarded to you by your bank, broker or other nominee who is considered, with respect to those Avon Shares, the shareholder of record. As the beneficial owner, you have the right to direct your bank, broker or other nominee how to vote your shares.

 

If your shares are held in the name of a bank, broker or other nominee, follow the instructions you receive from your nominee on how to vote your shares. Those instructions will identify which of the choices described in the section of this joint proxy statement/prospectus entitled “Questions and Answers About the Transaction and the Avon Special Meeting—Questions and Answers About the Avon Special Meeting—If I am a shareholder of record of Avon Shares, how do I vote?” are available to you in order to have your shares voted. Please note that if you are a beneficial owner and wish to vote in person at the Avon Special Meeting, you must provide a legal proxy issued in your name from the bank, broker or other nominee that holds your shares at the Avon Special Meeting.

 

How do I vote my Avon Personal Savings Account Plan shares?

 

If you are a participant in the Avon Personal Savings Account Plan (the “PSA Plan”) and invest in the Avon stock fund under the PSA Plan, the trustee of the PSA Plan, as record holder of the shares held in the PSA Plan, will vote the shares allocated to your account in accordance with your instructions. Unless your vote is received by          and unless you have specified your instructions, your shares held under the PSA Plan shall not be voted.

 

How will my shares be voted if I give my proxy?

 

When you provide your proxy, the Avon Shares represented by the proxy will be voted in accordance with your instructions. If you sign your proxy card without giving instructions, you will have granted authority to         , the named proxyholders, to vote “FOR” each of the Transaction Proposal, the Advisory Compensation Proposal and the Adjournment Proposal. Should any matter not described in this joint proxy statement/prospectus be properly presented at the Avon Special Meeting, the delivery of a signed proxy card shall confer authority upon the named proxyholders to vote your shares in accordance with their judgment on such other matters. The Avon board of directors currently knows of no other business that will be presented for consideration at the Avon Special Meeting.

 

As an Avon shareholder, what happens if I do not make specific voting choices?

 

Failures to vote, votes to abstain and failures to instruct your bank, broker or other nominee to vote will have the same effect as votes “AGAINST” the approval of the Transaction Proposal.

 

Failures to vote, votes to abstain and failures to instruct your bank, broker or other nominee to vote will have no effect on the approval of the Advisory Compensation Proposal or the Adjournment Proposal.

 

In accordance with the rules of the NYSE, banks, brokers or other nominees who hold Avon Shares in “street name” for their customers are not deemed to have received discretionary authority from the beneficial owner of such Avon Shares to vote the shares and therefore may not exercise their voting discretion with respect to approving the Transaction Proposal, the Advisory Compensation Proposal or the Adjournment Proposal. Accordingly, if banks, brokers or other nominees do not receive specific voting instructions from the beneficial owner of such shares, they may not vote such shares with respect to the Transaction Proposal, the Advisory Compensation Proposal or the Adjournment Proposal. If you beneficially own your Avon Shares in “street name” and you do not instruct your bank, broker or other nominee to vote your shares, it will have the same effect as a vote “AGAINST” the Transaction Proposal.

 

Can I change my vote or revoke my proxy after I have returned a proxy or voting instruction card?

 

Shareholders are entitled to revoke their proxies at any time before their shares are voted at the Avon Special Meeting. To revoke a proxy, you must file a written notice of revocation with Avon’s Corporate Secretary at 1 Avon Place, Suffern, NY 10901, deliver a duly executed proxy bearing a later date than the original submitted proxy, submit voting instructions by telephone or via the Internet on a later date, or attend the Avon Special Meeting and vote in person. Attendance at the Avon Special Meeting will not, by itself, revoke your proxy. The most recent

 

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proxy card or telephone or Internet proxy received by Avon for the Avon Special Meeting will be the one that will be counted.

 

If your shares are held in a stock brokerage account or by a bank, broker or other nominee, you may submit new voting instructions by contacting your bank, broker or other nominee and following their instructions or, if you have obtained a legal proxy from your bank, broker or other nominee giving you the right to vote your shares, by attending the Avon Special Meeting and voting in person.

 

What should I do if I receive more than one set of voting materials?

 

You may receive more than one set of voting materials, including multiple copies of this joint proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, if you hold your Avon Shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold your Avon Shares. If you are a holder of record and your Avon Shares are registered in more than one name, you will receive more than one proxy card. In order to ensure that all of your Avon Shares are voted at the Avon Special Meeting, please complete, sign, date and return each proxy card and voting instruction card that you receive.

 

Do I need to do anything with my Avon Shares other than voting for the proposals at the Avon Special Meeting?

 

If the Transaction is completed, each Avon Share (other than as provided in the Merger Agreement) will be exchanged for the Merger Consideration. Avon shareholders will receive instructions at that time regarding exchanging their Avon Shares for the Merger Consideration. You do not need to take any action at this time with respect to your Avon Shares. Please do not send your Avon stock certificates with your proxy card.

 

When should I submit my proxy?

 

You should submit your proxy as soon as possible so that your Avon Shares will be voted at the Avon Special Meeting. In order for your shares to be voted at the Avon Special Meeting, (i) proxies delivered over the Internet or by telephone must be submitted by          Eastern time on         , 2019 and (ii) proxies delivered by mail must be received before the polls close at the Avon Special Meeting.

 

If your shares are held in the name of a bank, broker or other nominee, follow the instructions you receive from your nominee on how to vote your shares. Please note that if you are a beneficial owner and wish to vote in person at the Avon Special Meeting, you must provide a legal proxy issued in your name from the bank, broker or other nominee that holds your shares at the Avon Special Meeting.

 

What do I need to do now?

 

Carefully read through this joint proxy statement/prospectus. Consider all the consequences that would occur should you vote “FOR” or “AGAINST” or “ABSTAIN” on the Transaction Proposal or fail to submit a proxy. Confer with any advisors you think necessary to make the best decision. Fill out your proxy card and send it back to Avon as soon as possible.

 

Even if you plan to attend the Avon Special Meeting in person, after carefully reading and considering the information contained in this joint proxy statement/prospectus, please submit your proxy promptly to ensure that your shares are represented at the Avon Special Meeting. If you decide to attend the Avon Special Meeting and vote in person, your vote by ballot will revoke any proxy previously submitted. Your attendance at the Avon Special Meeting will not by itself revoke your proxy.

 

If your shares are held in the name of a bank, broker or other nominee, follow the instructions you receive from your nominee on how to vote your shares. Please note that if you are a beneficial owner and wish to vote in person at the Avon Special Meeting, you must provide a legal proxy issued in your name from the bank, broker or other nominee that holds your shares at the Avon Special Meeting.

 

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What happens if I sell my Avon Shares before the Avon Special Meeting?

 

The Record Date for the Avon Special Meeting is earlier than the date of the Avon Special Meeting and the date that the Transaction is expected to be completed. If you transfer your Avon Shares after the Record Date but before the Avon Special Meeting, you will, unless the transferee receives a proxy from you, retain your right to vote at the Avon Special Meeting, but you will have transferred the right to receive the Merger Consideration in connection with the Transaction. In order to receive the Merger Consideration, you must hold your Avon Shares through the Closing Date.

 

What happens if I do not respond?

 

Failures to vote, votes to abstain and failures to instruct your bank, broker or other nominee to vote will have the same effect as votes “AGAINST” the approval of the Transaction Proposal.

 

Failures to vote, votes to abstain and failures to instruct your bank, broker or other nominee to vote will have no effect on the approval of the Advisory Compensation Proposal or the Adjournment Proposal.

 

Are there risks associated with the Transaction that I should consider in deciding how to vote?

 

Yes. You should carefully read the detailed description of the risks associated with the Transaction and Natura &Co Holding’s operations following the Transaction described in the section of this joint proxy statement/prospectus entitled “Risk Factors.” You also should read and carefully consider the risk factors of Avon contained in Item 1A of Avon’s 2018 Form 10-K, as such risks may be updated or supplemented in Avon’s subsequently filed quarterly reports on Form 10-Q or current reports on Form 8-K, which are incorporated by reference into this joint proxy statement/prospectus.

 

Who will count the votes?

 

Representatives of Avon’s transfer agent, Computershare Trust Company, N.A., will tabulate the votes and act as inspectors of election.

 

Where can I find the voting results of the Avon Special Meeting?

 

The preliminary voting results will be announced at the Avon Special Meeting. In addition, within four business days following certification of the final voting results, Avon intends to file the final voting results with the SEC on a current report on Form 8-K.

 

What is “householding”?

 

The SEC has adopted rules that permit companies and intermediaries (such as brokers or banks) to satisfy delivery requirements for proxy statements and annual reports with respect to two or more shareholders sharing the same address by delivering a single proxy statement or annual report, as applicable, addressed to those shareholders. As permitted by the Exchange Act, only one copy of this joint proxy statement/prospectus is being delivered to shareholders residing at the same address, unless such shareholders have notified the company whose shares they hold of their desire to receive multiple copies of this joint proxy statement/prospectus. This process, which is commonly referred to as “householding,” potentially provides extra convenience for shareholders and cost savings for companies.

 

Several brokers and banks with accountholders who are Avon shareholders will be “householding” Avon’s proxy materials. As indicated in the notice provided by these brokers to Avon shareholders, a single proxy statement will be delivered to multiple shareholders sharing an address unless contrary instructions have been received from an affected shareholder. Once you have received notice from your bank or broker that it will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent.

 

If, at any time, you no longer wish to participate in “householding” and you prefer to receive a separate proxy statement, please notify your bank or broker. Avon shareholders who currently receive multiple copies of this joint proxy statement/prospectus at their address and would like to request “householding” of their communications should contact their broker or bank.

 

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See the section of this joint proxy statement/prospectus entitled “Householding of Proxy Materials.”

 

Where and when will the Natura Cosméticos shareholder meetings be held and what matters will be voted on at the Natura Cosméticos shareholder meetings?

 

Natura Cosméticos will take, in accordance with applicable law and its constitutional documents, all action necessary to hold in Brazil, on a date as close as possible to the Avon Special Meeting.

 

Who can help answer my questions?

 

The information provided above in the question-and-answer format is for your convenience only and is merely a summary of some of the information contained in this joint proxy statement/prospectus. You should read carefully the entire joint proxy statement/prospectus, including the information in the Annexes thereto and in the Exhibits. See the section of this joint proxy statement/prospectus entitled “Where You Can Find More Information.” If you would like additional copies of this joint proxy statement/prospectus or the enclosed proxy card, without charge, or if you have questions about the Transaction, including the procedures for voting your shares, you should contact Avon’s proxy solicitor:

 

Innisfree M&A Incorporated

 

Shareholders may call toll-free: (877) 456-3442
Banks and brokers may call collect: (212) 750-5833

 

You are also urged to consult your own legal, tax and/or financial advisors with respect to any aspect of the Transaction, the Merger Agreement or the other matters discussed in this joint proxy statement/prospectus.

 

 

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Summary

 

The following is a summary that highlights information contained in this joint proxy statement/prospectus. This summary may not contain all the information that is important to you. For a more complete description of the Transaction, the Merger Agreement and the transactions contemplated thereby, we encourage you to read carefully this entire joint proxy statement/prospectus, including the annexes thereto and exhibits to the registration statement of which this joint proxy statement/prospectus is a part. In addition, we encourage you to read the information incorporated by reference into this joint proxy statement/prospectus, which includes important business and financial information about Natura &Co and Avon that has been filed with the SEC. You may obtain the information incorporated by reference into this joint proxy statement/prospectus without charge by following the instructions in the section of this joint proxy statement/prospectus entitled “Where You Can Find More Information.”

 

The Parties

 

Natura &Co

 

We are a global cosmetics group comprising three iconic brands and Brazil’s largest multinational cosmetics, hygiene and beauty company in terms of market share, as of December 2018, according to Euromonitor International, with operations in Asia, Europe, North America, Oceania, and South America. We believe we are a leading developer, manufacturer, distributor and seller of self-branded cosmetics, fragrances and toiletries in Brazil. Also, we believe our distinctive corporate culture, which values our relationships with our customers, our independent beauty consultants, our suppliers and others, and rests on a commitment to generate positive economic, social and environmental impact, has been fundamental to our growth.

 

Our principal place of business is located at Avenida Alexandre Colares, No. 1188, Parque Anhanguera, São Paulo, São Paulo, 05106-000, Brazil, telephone: +55 11 4446-4200. Our website address is: https://natu.infoinvest.com.br/en.

 

Avon

 

Avon is a global manufacturer and marketer of beauty and related products. Avon commenced operations in 1886 and was incorporated in the State of New York on January 27, 1916. Avon conducts business in the highly competitive beauty industry and competes against other consumer packaged goods and direct-selling companies to create, manufacture and market beauty and non-beauty-related products. Avon’s product categories are Beauty and Fashion & Home. Beauty consists of skincare, fragrance and color (cosmetics). Fashion & Home consists of fashion jewelry, watches, apparel, footwear, accessories, gift and decorative products, housewares, entertainment and leisure products, children’s products and nutritional products.

 

Avon’s business is conducted primarily in one channel, direct selling. Avon’s reportable segments are based on geographic operations in four regions: Europe, Middle East & Africa; South Latin America; North Latin America; and Asia Pacific. All of Avon’s consolidated revenue is derived from operations of subsidiaries outside of the United States.

 

As of the date hereof, Avon’s headquarters and principal executive offices are located at Building 6, Chiswick Park, London W4 5HR, United Kingdom, telephone: + 44-1604-232425. Avon’s website address is: avonworldwide.com/.

 

Natura &Co Holding

 

Upon the occurrence of the Founders Contribution, Natura &Co Holding will be an affiliate of Natura Cosméticos. On January 21, 2019, Natura &Co Holding was incorporated under the laws of Brazil as a corporation (sociedade anônima), having its registered office at business in the city of São Paulo, state of São Paulo, at Avenida Alexandre Colares, No. 1188, Sala A17-Bloco A, Parque Anhanguera, 05106-000, Brazil, enrolled with the

 

 

 

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Brazilian taxpayers’ registry (Cadastro Nacional de Pessoas Jurídicas — CNPJ) under No. 32.785.497/0001-97, for the purpose of entering into the Merger Agreement.

 

Natura &Co Holding has not conducted any business operations other than those that are incidental to its formation and in connection with the transactions contemplated by the Merger Agreement. As of the date of this joint proxy statement/prospectus, Natura &Co Holding does not beneficially own any Avon Shares or Natura Cosméticos Shares. Following the completion of the transactions contemplated by the Merger Agreement, Avon and Natura &Co will each become wholly owned subsidiaries of Natura &Co Holding, and it is expected that Natura &Co Holding Shares will be listed on the B3 and that Natura &Co Holding ADSs will be listed on the NYSE.

 

As of the date hereof, the principal executive offices of Natura &Co Holding are located at Avenida Alexandre Colares, No. 1188, Sala A17-Bloco A, Parque Anhanguera, São Paulo, São Paulo 05106-000, Brazil, telephone: +55 11 4446-4200.

 

Risk Factors

 

The transactions contemplated by the Merger Agreement involve risks, some of which are related to such transactions themselves and others of which are related to Natura &Co’s and Avon’s respective businesses and to investing in and ownership of Natura &Co Holding ADSs and Natura &Co Holding Shares following the consummation of such transactions, assuming they are completed. In considering the transactions contemplated by the Merger Agreement, you should carefully consider the information about these risks set forth under the section of this joint proxy statement/prospectus entitled “Risk Factors” beginning on page 32 of this joint proxy statement/prospectus together with the other information included in or incorporated by reference into this joint proxy statement/prospectus.

 

The Transaction and the Merger Agreement

 

The Merger Agreement provides that, subject to the terms and conditions described therein, and upon consummation of all of the transactions contemplated thereby, Avon and Natura Cosméticos will each become wholly owned subsidiaries of Natura &Co Holding, and each of Avon and Natura Cosméticos will cease to have its own shares traded on a stock exchange. The terms and conditions of the contemplated transactions are contained in the Merger Agreement, which is described in this joint proxy statement/prospectus and which is attached as Annex A and incorporated into this joint proxy statement/prospectus by reference in its entirety. You are encouraged to read the Merger Agreement carefully, as it is the legal document that governs the Transaction. All descriptions in this summary and in this joint proxy statement/prospectus of the terms and conditions of the proposed transactions are qualified in their entirety by reference to the Merger Agreement.

 

The Avon Special Meeting

 

Date, Time and Place of the Avon Special Meeting

 

The Avon Special Meeting will be held on         , 2019, at          a.m./p.m.          time at         .

 

Record Date; Shares Entitled to Vote

 

Only holders of record of outstanding Avon Shares at the close of business on         , the Record Date for the Avon Special Meeting fixed by Avon’s board of directors, are entitled to receive notice of, and to vote at, the Avon Special Meeting.

 

At the close of business on the Record Date, there were approximately          Avon Common Shares outstanding and entitled to vote for an aggregate vote of approximately          (or one vote per share) and 435,000 shares of Avon Preferred Shares outstanding and entitled to vote for an aggregate vote of          (on an as-converted basis). Holders of Avon Common Shares and Avon Preferred Shares will vote together as a single class on all matters being presented in this joint proxy statement/prospectus for an aggregate of, as of the close of business on the Record Date, approximately          votes.

 

 

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Quorum

 

The presence at the meeting, in person or by proxy, of the holders of a majority of the Avon Shares outstanding as of the close of business on the Record Date and entitled to vote at the Avon Special Meeting will constitute a quorum for the Avon Special Meeting. Abstentions and broker non-votes will be counted for purposes of establishing a quorum at the Avon Special Meeting. A quorum is necessary to transact business at the Avon Special Meeting. At any adjourned meeting at which a quorum is present, any business may be transacted that might have been transacted at the original meeting. If a quorum is not present, the Avon Special Meeting may be adjourned to allow additional time to solicit proxies or votes. When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of any shareholders.

 

Required Vote

 

Approval of the Transaction Proposal requires the affirmative vote of the holders of two-thirds of the outstanding Avon Shares entitled to vote on the matter at the Avon Special Meeting, voting together as a single class on an as-converted basis. Votes to abstain will have the same effect as votes “AGAINST” the approval of the Transaction Proposal.

 

Approval of each of the Advisory Compensation Proposal and the Adjournment Proposal requires the affirmative vote of a majority of votes cast thereon, voting together as a single class on an as-converted basis. “Votes cast” means the votes actually cast “FOR” or “AGAINST” a particular proposal, whether in person or by proxy. An abstention will not constitute a vote cast. If a holder of outstanding Avon Shares entitled to vote fails to submit a valid proxy or to vote in person at the Avon Special Meeting or votes to abstain, it will have no effect on the approval of the Advisory Compensation Proposal or the Adjournment Proposal.

 

For additional information, see the section of this joint proxy statement/prospectus entitled “The Avon Special Meeting.”

 

Merger Consideration

 

Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, upon the completion of the Transaction:

 

·each Avon Common Share issued and outstanding immediately prior to the consummation of the Transaction (other than as provided in the Merger Agreement) will be automatically converted into the ultimate right to receive, at the election of the holder thereof, (i) 0.300 validly issued and allotted, fully paid-up Natura &Co Holding ADSs against the deposit of the requisite number of 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) 0.300 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; and

 

·each Avon Preferred Share issued and outstanding immediately prior to the consummation of the Transaction (other than as provided in the Merger Agreement) will be automatically converted into the right to receive an amount in cash without interest equal to the Stated Value (as defined in Avon’s certificate of incorporation) of such Avon Preferred Share. As of the Record Date, the Stated Value was         .

 

For more information on the merger consideration, see the section of this joint proxy statement/prospectus entitled “The Transaction Documents—Merger Agreement—Merger Consideration.”

 

Reasons for the Proposed Transaction

 

The board of directors of each of Avon and Natura Cosméticos considered a number of factors in making their respective determinations that the Merger Agreement and the transactions contemplated by the Merger Agreement are fair to and in the best interests of each of Avon and Natura Cosméticos, respectively, and their respective

 

 

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shareholders. After careful consideration, the Avon board of directors has (i) approved, adopted and declared advisable the Merger Agreement and all of the transactions contemplated by the Merger Agreement, (ii) declared that it is fair to and in the best interests of Avon and its shareholders that Avon enter into the Merger Agreement and consummate the transactions contemplated by the Merger Agreement and (iii) directed that the Merger Agreement be submitted to the shareholders of Avon and recommended that the shareholders of Avon vote their Avon Shares in favor of the adoption of the Merger Agreement at the Avon Special Meeting (such recommendation, the “Avon Board Recommendation”). After due consideration and discussion of such factors, the board of directors of Natura Cosméticos unanimously approved the execution of the Merger Agreement and the authorization for its executive officers to implement the transactions contemplated by the Merger Agreement.

 

For more information on the reasons underlying the decision by the board of directors of Avon and Natura Cosméticos, respectively, to approve the transactions contemplated by the Merger Agreement, see the sections of this joint proxy statement/prospectus entitled “The Transaction—Recommendation of the Avon Board of Directors; Avon’s Reasons for the Transaction” and “The Transaction—Natura Cosméticos’s Reasons for the Proposed Transaction.”

 

Opinion of Avon’s Financial Advisor

 

Avon retained GSI (as defined below) as its financial advisor in connection with the Transaction. In connection with this engagement, Goldman Sachs (as defined below) was asked to deliver the opinion described below.

 

Opinion of Goldman Sachs

 

Goldman Sachs & Co. LLC (“Goldman Sachs”) delivered its opinion to the Avon board of directors that, as of May 22, 2019, and taking into account the Founders Contribution and the Merger of Shares and based upon and subject to the factors and assumptions set forth therein, the Transaction Exchange Ratios, which is defined in the section of this joint proxy statement/prospectus entitled “The Transaction—Opinion of Avon’s Financial Advisor,” pursuant to the Merger Agreement were fair from a financial point of view to the holders (other than Natura Cosméticos and its affiliates) of Avon Common Shares.

 

The full text of the written opinion of Goldman Sachs, dated May 22, 2019, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex E and incorporated into this joint proxy statement/prospectus by reference in its entirety. Goldman Sachs provided advisory services and its opinion for the information and assistance of the Avon board of directors in connection with its consideration of the Transaction. The Goldman Sachs opinion is not a recommendation as to how any holder of Avon Common Shares should vote with respect to the Transaction or any other matter. The summary of Goldman Sachs’ opinion set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of Goldman Sachs’ opinion. Pursuant to an engagement letter between Avon and Goldman Sachs International, an affiliate of Goldman Sachs (“GSI”), Avon has agreed to pay GSI (i) an upfront financial advisory fee of U.S.$5 million, payable in installments, commencing from the date of the engagement letter (the “Upfront Fee”), credited against certain other fees payable by Avon to Goldman Sachs or any of its affiliates on unrelated matters, in the event that the Transaction is not consummated and (ii) a transaction fee that is estimated, based on the information available as of the date of announcement of the Transaction, to be approximately U.S.$27 million, less the Upfront Fee, all of which is contingent upon the consummation of the Transaction. The amount of the transaction fee will be finally calculated based on information available at or around the Closing Date, in accordance with the terms of the engagement letter.

 

For a summary of the opinion of Goldman Sachs and the methodology that Goldman Sachs used to render its opinion, see the section of this joint proxy statement/prospectus entitled “The Transaction—Opinion of Avon’s Financial Advisor”.

 

 

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Opinion of the Independent Non-Cerberus Directors’ Financial Advisor

 

The independent non-Cerberus directors of the Avon board of directors retained PJT Partners (as defined below) as their financial advisor in connection with the Transaction. In connection with this engagement, PJT Partners was asked to deliver the opinion described below.

 

Opinion of PJT Partners

 

PJT Partners LP (which we refer to as “PJT Partners”) was retained by the independent non-Cerberus directors of the Avon board of directors to act as their financial advisor in connection with the Transaction and, upon the independent non-Cerberus directors’ request, to render its financial opinion to the independent non-Cerberus directors in connection therewith. The independent non-Cerberus directors selected PJT Partners to act as their financial advisor based on PJT Partners’ qualifications, expertise and reputation, its knowledge of the industry and expertise in the valuation of businesses and securities in connection with mergers and acquisitions. On May 22, 2019, PJT Partners rendered its oral opinion (which was subsequently confirmed in writing) to the independent non-Cerberus directors, that, as of such date and based upon and subject to the qualifications, limitations and assumptions stated in its opinion, the Exchange Ratio in connection with the Transaction was fair to the holders of Avon Common Shares (other than Natura Cosméticos or its affiliates who are holders of Avon Common Shares) from a financial point of view.

 

The full text of PJT Partners’ written opinion delivered to the independent non-Cerberus directors, dated May 22, 2019, is attached as Annex F and incorporated into this joint proxy statement/prospectus by reference in its entirety. PJT Partners’ written opinion sets forth, among other things, the assumptions made, procedures followed, factors considered and limitations upon the review undertaken by PJT Partners in rendering its opinion. You are encouraged to read the opinion carefully in its entirety. PJT Partners provided its opinion to the independent non-Cerberus directors, in their capacity as such, in connection with and for the purposes of their evaluation of the Transaction only and PJT Partners’ opinion is not a recommendation as to any action the independent non-Cerberus directors or the Avon board of directors should take with respect to the Transaction or any aspect thereof. The opinion does not constitute a recommendation to any holder of any shares of Avon Common Shares as to how any shareholder should vote or act with respect to the Transaction or any other matter. The summary of PJT Partners’ opinion set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of PJT Partners’ opinion.

 

For a summary of PJT Partners’ opinion and the methodology that PJT Partners used to render its opinion, see the section of this joint proxy statement/prospectus entitled “The Transaction—Opinion of the Independent Non-Cerberus Directors’ Financial Advisor”.

 

Regulatory Approvals Required for the Transaction

 

Closing of the transactions contemplated by the Merger Agreement is subject to obtaining regulatory approval (or deemed approval by expiration of the applicable waiting period) by the Administrative Council of Economic Defense of Brazil and by certain other foreign regulators as required under the terms of the Merger Agreement. Avon and the Natura Entities have agreed to use their respective reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, and assist and cooperate with the other parties in doing, all things reasonably necessary, proper or advisable under applicable law to consummate the transactions contemplated by the Merger Agreement as promptly as reasonably practicable. Avon and Natura Cosméticos are in the process of completing the filing of applications and notifications to obtain the required regulatory approvals. The Transaction cannot be consummated until the closing conditions relating to applicable filings and clearances under antitrust laws in the relevant jurisdictions have been satisfied or waived.

 

For a description of the required antitrust filings and clearances, see the section of this joint proxy statement/prospectus entitled “Regulatory Matters—Antitrust Approvals Required for the Transaction” and for a description of the standard of efforts required by Avon and the Natura Entities to consummate the transactions contemplated by the Merger Agreement, see the section of this joint proxy statement/prospectus entitled “The Transaction Documents—Merger Agreement–Efforts to Complete the Merger.”

 

 

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Withdrawal Rights for Natura Cosméticos Shareholders

 

Dissenting shareholders at the extraordinary general meeting for the Natura Cosméticos Shareholder Approval shall have withdrawal rights at a price based on net equity book value of Natura Cosméticos. Considering that immediately before the Merger of Shares Natura &Co Holding’s sole assets will be the shares in Natura Cosméticos (other than the cash contribution in the exact amount required to fund the payment by Natura &Co Holding of the corporate income tax to be assessed on the capital reserve to be accounted for as a result of the Founders Contribution), Natura Cosméticos intends to request a waiver from the CVM of the requirement for preparation of appraisal reports of net equity at market value of Natura Cosméticos and Natura &Co Holding for purposes of the comparison required by article 264 of the Brazilian Corporation Law, as such comparison would result in the same share exchange ratio for the non-controlling shareholders.

 

Withdrawal rights will be available for shareholders that hold Natura Cosméticos Shares, uninterruptedly, from May 22, 2019 (inclusive), which is the date of release of the Material Fact announcing the Transaction, until the date of the actual exercise of the withdrawal right (inclusive).

 

Natura Cosméticos shareholders shall have the right to exercise their withdrawal right by providing notice of their intention to do so within the period starting on the date of disclosure of the minutes of the extraordinary general meeting for Natura Cosméticos Shareholder Approval and ending 30 days thereafter (inclusive), and provided that the relevant shareholder (i) does not vote in favor of the Transaction, (ii) abstains from voting with respect to the Transaction or (iii) does not attend the extraordinary general meeting for Natura Cosméticos Shareholder Approval.

 

As the effectiveness of the resolutions to be voted on at the extraordinary general meeting for the Natura Cosméticos Shareholder Approval will be subject to the Avon Shareholder Approval having been obtained, withdrawal rights will be exercisable only upon confirmation that the Avon Shareholder Approval was granted on the same date.

 

No Appraisal Rights for Avon Common Shareholders

 

Under the NYBCL, Avon common shareholders are not entitled to exercise any appraisal or dissenters’ rights in connection with the Transaction. The NYBCL provides for appraisal rights under certain circumstances. Among other exceptions, appraisal rights are not available to a shareholder for the shares of any class or series of stock, which shares or depository receipts in respect thereof, at the record date fixed to determine the shareholders entitled to receive notice of the meeting of shareholders to vote upon the plan of merger or consolidation, were listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc.

 

No Solicitation of an Avon Acquisition Proposal; Avon Adverse Recommendation Change

 

The Merger Agreement places certain restrictions on Avon’s ability to take certain actions with respect to Avon Acquisition Proposals (as defined in the section of this joint proxy statement/prospectus entitled “The Transaction Documents—The Merger Agreement—No Solicitation of an Avon Acquisition Proposal; Avon Adverse Recommendation Change”), including (i) soliciting Avon Acquisition Proposals, (ii) entering into discussions relating to Avon Acquisition Proposals, (iii) amending or granting waivers or releases under any standstill or similar agreements with respect to any class of equity securities of Avon or any of its subsidiaries (unless Avon’s board of directors determines after considering advice from outside legal counsel that the failure to waive or release such provision would be inconsistent with its fiduciary duties under applicable law), (iv) making an Avon Adverse Recommendation Change (as defined in the section of this joint proxy statement/prospectus entitled “The Transaction Documents—The Merger Agreement—No Solicitation of an Avon Acquisition Proposal; Avon Adverse Recommendation Change”) or (v) entering into agreements relating to Avon Acquisition Proposals.

 

The Merger Agreement also provides that subject to certain requirements being met, prior to obtaining the Avon Shareholder Approval, but in no event after the Avon Shareholder Approval is obtained, (i) if Avon receives a written Avon Acquisition Proposal from a third party, which Avon Acquisition Proposal did not result from a breach of the non-solicit provision of the Merger Agreement, Avon may contact such third party for clarifying the terms

 

 

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and conditions thereof and if Avon’s board of directors determines that such Avon Acquisition Proposal would reasonably be expected to result in an Avon Superior Proposal (as defined in the section of this joint proxy statement/prospectus entitled “The Transaction Documents—The Merger Agreement—No Solicitation of an Avon Acquisition Proposal; Avon Adverse Recommendation Change”), Avon may engage in discussions with such third party, on the terms and subject to the conditions set forth in the Merger Agreement, (ii) following receipt of an Avon Superior Proposal, Avon’s board of directors may (a) make an Avon Adverse Recommendation Change or (b) terminate the Merger Agreement in accordance with the applicable provisions thereof and (iii) upon the occurrence of an Avon Intervening Event (as defined in the section of this joint proxy statement/prospectus entitled “The Transaction Documents—The Merger Agreement—No Solicitation of an Avon Acquisition Proposal; Avon Adverse Recommendation Change”), Avon’s board of directors may make an Avon Adverse Recommendation Change on the terms and subject to the conditions set forth in the Merger Agreement.

 

As of May 22, 2019, the date of the Merger Agreement, Avon was obligated to, and obligated to cause Avon’s subsidiaries and use reasonable best efforts to cause Avon’s and Avon’s subsidiaries respective representatives to, cease immediately and cause to be terminated any and all existing discussions or negotiations, if any, with any third party conducted prior to the date of the Merger Agreement with respect to any Avon Acquisition Proposal.

 

For more information on the provisions in the Merger Agreement relating to non-solicitation of Avon Acquisition Proposals and Avon Adverse Recommendation Changes, see the section of this joint proxy statement/prospectus entitled “The Transaction Documents—The Merger Agreement—No Solicitation of an Avon Acquisition Proposal; Avon Adverse Recommendation Change.”

 

No Solicitation of a Natura Cosméticos Acquisition Proposal

 

The Merger Agreement places certain restrictions on Natura Cosméticos’s and Natura &Co Holding’s ability to take certain actions with respect to Natura Acquisition Proposals (as defined in the section of this joint proxy statement/prospectus entitled “The Transaction Documents—The Merger Agreement—No Solicitation of Natura Acquisition Proposal”), including (i) soliciting Natura Acquisition Proposals, (ii) entering into discussions relating to Natura Acquisition Proposals, (iii) amending or granting waivers or releases under any standstill or similar agreements with respect to any class of equity securities of the Natura Entities or any of their subsidiaries, (iv) (a) withdrawing, revoking or modifying in a manner adverse to Avon, or publicly proposing to withdraw, revoke or modify in a manner adverse to Avon, the approval by the boards of directors of Natura Cosméticos and Natura &Co Holding of the Merger Agreement and the transactions contemplated by the Merger Agreement or (b) recommending, adopting or approving or publicly proposing to recommend, adopt or approve a Natura Acquisition Proposal or (v) entering into an agreement relating to a Natura Acquisition Proposal.

 

As of May 22, 2019, the date of the Merger Agreement, each of the Natura Entities was obligated to, and obligated to cause its subsidiaries and use reasonable best efforts to cause its and their respective representatives to, cease immediately and cause to be terminated any and all existing discussions or negotiations, if any, with any third party conducted prior to the date of the Merger Agreement with respect to any Natura Acquisition Proposal.

 

For more information on the provisions in the Merger Agreement relating to non-solicitation of Natura Acquisition Proposals, see the section of this joint proxy statement/prospectus entitled “The Transaction Documents—The Merger Agreement—No Solicitation of a Natura Acquisition Proposal.”

 

Conditions Precedent That Must Be Satisfied or Waived for the Transaction to Occur

 

As more fully described in this joint proxy statement/prospectus and as set forth in the Merger Agreement, in addition to obtaining certain required regulatory approvals, closing of the Transaction is subject to certain additional conditions, including, among others, customary conditions relating to (i) obtaining the affirmative vote of the holders of two-thirds of the outstanding Avon Shares voting together as a single class on an as-converted basis (the “Avon Shareholder Approval”) in accordance with applicable law; (ii) approval of the Natura Restructuring and Mergers, including the issuance of the Natura &Co Holding Shares underlying the Natura &Co Holding ADSs constituting Common Stock Consideration and the other transactions contemplated by the Merger Agreement by the affirmative vote of the Founders, which will hold more than half of the voting shares of Natura &Co Holding and

 

 

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Natura Cosméticos in accordance with applicable law; (iii) consummation of the Natura Restructuring in accordance with the terms of the Merger Agreement; (iv) the effectiveness of this joint proxy statement/prospectus; (v) the approval of the listing of the Natura &Co Holding ADSs on the NYSE, subject to official notice of issuance; (vi) the approval of the listing of the Natura &Co Holding Shares on the B3 stock exchange in Brazil under the Novo Mercado segment, subject to official notice of issuance; (vii) the parties’ representations and warranties being true and correct (subject to certain exceptions); and (viii) the parties having performed in all material respects their respective obligations under the Merger Agreement.

 

For more information on the conditions precedent that must be satisfied or waived for the Transaction to occur, see the section of this joint proxy statement/prospectus entitled “The Transaction Documents—The Merger Agreement—Conditions to the Mergers.”

 

Termination of the Merger Agreement

 

The Merger Agreement provides for certain mutual termination rights of Avon and Natura Cosméticos, including the right of either party to terminate the Merger Agreement if the Transaction is not consummated by July 22, 2020 (the “End Date”). Either party may also terminate the Merger Agreement if the requisite approval of Avon’s shareholders has not been obtained at the Avon Special Meeting or if applicable law or an order permanently prohibits consummation of the Transaction or any of the other transactions contemplated by the Merger Agreement. In addition, Natura Cosméticos may, prior to the Avon shareholder approval being obtained, terminate the Merger Agreement if (i) Avon’s board of directors changes its recommendation with respect to the transactions contemplated by the Merger Agreement, (ii) a competing acquisition proposal has been announced and Avon’s board of directors fails to publicly reaffirm its recommendation of the transactions contemplated by the Merger Agreement in certain circumstances or (iii) Avon materially and intentionally breaches certain obligations not to solicit a competing acquisition proposal or to provide Natura Cosméticos with match rights. Avon may also terminate the Merger Agreement (i) to enter into an agreement concerning an Avon Superior Proposal, subject and conditioned upon payment of a certain termination fee to Natura Cosméticos, as described below, (ii) if requisite approvals of Natura Cosméticos’s or Natura &Co Holding’s shareholders for effecting the Natura Restructuring have not been obtained or (iii) if the Founding Controlling Parent Shareholders have not voted their Natura Cosméticos shares in favor of the Natura Restructuring and the Mergers at a pre-meeting under the Founding Controlling Parent Shareholders’ existing shareholders’ agreement, in the case of clauses (ii) and (iii), within the timeframes specified in the Merger Agreement.

 

For more information on termination of the Merger Agreement, see the section of this joint proxy statement/prospectus entitled “The Transaction Documents—The Merger Agreement—Termination of the Merger Agreement.”

 

Termination Fees

 

Avon will be obligated to pay Natura Cosméticos a termination fee equal to U.S.$78.6 million if the Merger Agreement is terminated (i) by Natura Cosméticos if Avon’s board of directors (x) changes its recommendation of the transactions contemplated by the Merger Agreement or (y) fails to publicly reaffirm its recommendation of such transactions after public announcement of a competing acquisition proposal in certain circumstances, (ii) by Natura Cosméticos if Avon materially and intentionally breaches certain covenants to not solicit alternative proposals or to provide match rights to Natura Cosméticos, (iii) by Avon, in order to enter into a definitive written agreement concerning an Avon Superior Proposal, (iv) by Avon or Natura Cosméticos if the requisite approval from Avon’s shareholders has not been obtained at a duly convened meeting of Avon’s shareholders (including any adjournment or postponement thereof) at a time when Avon’s board of directors changed its recommendation of the Transaction, (v) by Avon or Natura Cosméticos if the requisite approval from Avon’s shareholders has not been obtained at a duly convened meeting of Avon’s shareholders (including any adjournment or postponement thereof) and, prior to Avon’s shareholder meeting, a competing acquisition proposal has been publicly made, and within 12 months following the date of termination of the Merger Agreement, Avon enters into a definitive agreement with respect to certain acquisition proposals or consummates certain acquisition proposals or (vi) by Avon or Natura Cosméticos if the Merger Agreement is not consummated by the End Date, and, prior to termination, a competing acquisition proposal shall have been publicly made, and within 12 months following the date of termination, Avon enters into a

 

 

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 definitive agreement with respect to certain acquisition proposals or consummates certain acquisition proposals, provided that Avon shall not be required to pay such fee if, at the time of termination, the requisite approval of Avon’s shareholders has been obtained, but the regulatory approval condition has not been satisfied or applicable law or an order prohibits the consummation of the Transaction.

 

Natura Cosméticos or Natura &Co Holding will be obligated to pay Avon a termination fee equal to U.S.$133 million if the Merger Agreement is terminated because (i) the transactions contemplated by the Merger Agreement are not consummated by the End Date and at the time of such termination all conditions to closing are satisfied or would be satisfied but the regulatory approval condition has not been satisfied, or competition law or an order with respect to competition law prohibits the consummation of such transactions or (ii) there is any competition law or an order with respect to competition law that permanently prohibits or makes illegal consummation of any of the transactions contemplated by the Merger Agreement, and such applicable law or order is final and non-appealable and, at the time of such termination, all conditions to Avon’s obligations to closing are satisfied or would be satisfied. Natura Cosméticos or Natura &Co Holding will also be obligated to pay Avon a fee equal to U.S.$242 million if the Merger Agreement is terminated because (i) Natura Cosméticos or Natura &Co Holding shareholder approvals effecting the Natura Restructuring have not been obtained (ii) the Founding Controlling Parent Shareholders have not voted their Natura Cosméticos Shares in favor of the Natura Restructuring and the Mergers at a pre-meeting under the Founding Controlling Parent Shareholders’ existing shareholders’ agreement, in each case, within the timeframes specified in the Merger Agreement.

 

For more information on termination fees, see the section of this joint proxy statement/prospectus entitled “The Transaction Documents—The Merger Agreement—Termination Fees.”

 

The Natura Founders’ Voting and Support Agreement

 

On May 22, 2019, concurrently with the execution of the Merger Agreement, the Founders entered into a Voting and Support agreement (the “Natura Founders’ Voting and Support Agreement”) with Avon, Natura Cosméticos and Natura &Co Holding. All of the shares issued and outstanding of Natura Cosméticos and Natura &Co Holding held directly or indirectly by the Founders subject to the Natura Founders’ Voting and Support Agreement (the “Founders’ Shares”) constituted approximately 50.5% of the total voting capital stock of Natura Cosméticos and 100% of the capital stock of Natura &Co Holding, in each case, as of May 22, 2019. Pursuant to the Natura Founders’ Voting and Support Agreement, the Founders have agreed to perform or cause to be performed all necessary and advisable acts, as shareholders and directors of Natura Cosméticos and Natura &Co Holding to, among other things, (i) approve and complete the Founders Contribution and (ii) approve and, to the extent within their power, complete the Merger of Shares and the Mergers, including in each case voting in favor of the transactions as directors and shareholders and cooperating and assisting with necessary, proper or advisable filings and procedures to complete the transactions contemplated by the Merger Agreement under applicable law.

 

Additionally, on May 27, 2019, the following shareholder members of the controlling block also executed joinder agreements to the Natura Founders’ Voting and Support Agreement: Maria Heli Dalla Colleta De Mattos, Fabio Dalla Colletta de Mattos and Gustavo Dalla Colletta De Mattos, who collectively hold approximately 3.84% of Natura Cosméticos.

 

Further, the Founders have also agreed not to solicit or take any action to facilitate the submission of an alternate acquisition proposal for Natura Cosméticos, including by refraining from discussing or providing information to any person in connection with such a proposal. The Founders also agreed not to, among other things, sell, transfer or encumber any Founders’ Shares.

 

The Natura Founders’ Voting and Support Agreement will terminate upon the termination of the Merger Agreement, other than a termination arising from a violation of the Natura Founders’ Voting and Support Agreement.

 

 

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The Cerberus Investor Voting and Support Agreement

 

On May 22, 2019, concurrently with the execution of the Merger Agreement, Cleveland Apple Investor L.P. (“Cerberus Investor”), an affiliate of Cerberus Capital Management L.P. (“Cerberus”), entered into a Voting and Support Agreement (the “Cerberus Investor Voting and Support Agreement”) with Natura Cosméticos and Merger Sub I. As of the Record Date, the Avon Shares subject to the Cerberus Investor Voting and Support Agreement constituted approximately      % of the total outstanding Avon Shares entitled to vote at the Avon Special Meeting on an as-converted basis. Pursuant to the Cerberus Investor Voting and Support Agreement, Cerberus Investor has agreed to, among other things, (i) vote the Avon Preferred Shares held by it, and any other shares of capital stock of Avon held by Cerberus Investor and certain of its affiliates (the “Cerberus Shares”), in favor of the adoption of the Merger Agreement and approval of the transactions contemplated thereby, (ii) vote the Cerberus Shares in favor of any proposal to adjourn or postpone a meeting of shareholders to a later date to solicit additional proxies in favor of the adoption of the Merger Agreement and (iii) vote against alternate acquisition proposals for Avon or any other action that would reasonably be expected to materially delay or prevent the consummation of the Mergers and the other transactions contemplated by the Merger Agreement.

 

Further, Cerberus Investor has also agreed not to solicit or take any action to facilitate the submission of an alternate acquisition proposal for Avon and refraining from discussing or providing non-public information to any person seeking to make or that has made a proposal. Cerberus Investor has also agreed not to, among other things, sell, transfer or encumber any Cerberus Shares, subject to certain exceptions.

 

The Cerberus Investor Voting and Support Agreement will terminate upon (i) the termination of the Merger Agreement in accordance with its terms, (ii) any change to the terms of the Merger Agreement not approved by Cerberus Investor that changes the form or amount of consideration payable with respect to the shares held by Cerberus Investor or its affiliates or is by its terms materially adverse to Cerberus Investor and (iii) the effective time of the First Merger.

 

Material U.S. Tax Considerations

 

The Transaction. The Transaction is intended to qualify as a transaction described in Section 351(a) of the Code, generally with no gain or loss recognition to U.S. holders of Avon Common Shares for U.S. federal income tax purposes. The Transaction is not expected to result in gain being recognized by a U.S. holder of Avon Common Shares because of the application of Section 367(a)(1) of the Code, other than with respect to any holder of Avon Common Shares that would be a “five-percent transferee shareholder” of Natura &Co Holding (within the meaning of U.S. Treasury Regulations Section 1.367(a)-3(c)(5)(ii)) following the Transaction and that does not enter into a five-year gain recognition agreement in the form provided in U.S. Treasury Regulations Section 1.367(a)-8(c) (a “Gain Recognition Agreement”; and the tax treatment described in this paragraph, the “Intended U.S. Tax Treatment”).

 

Assuming the Transaction qualifies for the Intended U.S. Tax Treatment, a U.S. holder of Avon Common Shares generally will not recognize any gain or loss upon receipt of Natura &Co Holding Shares or Natura &Co Holding ADSs in exchange for Avon Common Shares in the Transaction, except with respect to any cash received in lieu of fractional Natura &Co Holding Shares or Natura &Co Holding ADSs. If the Intended U.S. Tax Treatment were to be challenged by the IRS and such challenge were to be sustained, then each U.S. holder of Avon Common Shares would recognize gain (and might not be allowed to recognize loss) equal to the difference between the (1) the sum of the fair market value of the Natura &Co Holding Shares or Natura &Co Holding ADSs and any cash received in lieu of fractional Natura &Co Holding Shares or Natura &Co Holding ADSs and (2) its tax basis in the Avon Common Shares surrendered in exchange therefor, as calculated separately for each block of Avon Common Shares.

 

There are factual uncertainties concerning the Intended U.S. Tax Treatment. In particular, Section 367(a) of the Code and the applicable U.S. Treasury Regulations promulgated thereunder require that in order for U.S. holders of Avon Common Shares to avoid recognizing gain on the exchange of their Avon Common Shares in the Transaction, certain requirements must be met, including that the fair market value of Natura &Co Holding equal or exceed that of Avon on the Closing Date. The determination of fair market value for this purpose is complex and involves certain factual uncertainties, including taking into account several factors in addition to the estimated ratio of ownership of Natura &Co Holding Shares or Natura &Co Holding

 

 

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ADSs by Avon Shareholders following the Transaction, which is expected to be approximately 24% (the “Estimated Ownership Ratio”). If on the Closing Date the fair market value of Avon were found to exceed that of Natura &Co Holding for purposes of Section 367(a), a U.S. holder of Avon Common Shares would recognize gain (but not loss) based on the amount such U.S. holder realizes in the Transaction, as calculated separately for each block of Avon Common Shares. Moreover, receipt of an opinion from counsel to the effect that the Transaction should qualify for the Intended U.S. Tax Treatment is not a closing condition to the Transaction and none of Avon, Natura &Co Holding, Natura Cosméticos, Merger Sub I or Merger Sub II intends to request a ruling from the IRS regarding the U.S. federal income tax consequences of the Transaction.

 

Non-U.S. holders of Avon Common Shares will generally not be subject to U.S. federal income tax on any gain recognized in the Transaction. For more information on U.S. taxation considerations, see the section of this joint proxy statement/prospectus entitled “Material Tax Considerations—Material U.S. Federal Income Tax Considerations.”

 

Tax matters are very complicated, and the tax consequences of the Transaction to each holder of Avon Common Shares may depend on such shareholder’s particular facts and circumstances. Holders of Avon Common Shares are urged to consult their tax advisors to understand fully the tax consequences to them of the Transaction.

 

Brazilian Taxation

 

For more information on Brazilian taxation considerations, see the section of this joint proxy statement/prospectus entitled “Material Tax Considerations—Material Brazilian Tax Considerations.”

 

Accounting Treatment of the Transaction

 

The Transaction will be accounted for by Natura &Co Holding under the acquisition method of accounting, under IFRS, with Natura Cosméticos being the accounting acquirer for financial reporting purposes. Under the acquisition method of accounting, Natura &Co Holding will record the tangible and intangible assets acquired and liabilities assumed of Avon at their fair values. For a more detailed discussion of the accounting treatment of the Transaction, see the section of this joint proxy statement/prospectus entitled “The Transaction—Accounting Treatment of the Transaction.”

 

Treatment of Equity and Equity-Based Awards

 

Each award of Avon Stock Options and Avon SARs outstanding at the effective time of the Transaction will be canceled at the effective time of the Transaction in exchange for the right to receive an amount in cash equal to the aggregate spread value of such award. Each award of Avon RSUs, Avon PSUs and Avon Restricted Stock outstanding at the effective time of the Transaction will be converted at the effective time of the Transaction into an award representing a number of Natura &Co Holding Shares that will generally be subject to same terms and conditions as the related award of Avon RSUs, Avon PSUs or Avon Restricted Stock (including service-based vesting conditions but not performance-based vesting conditions). The number of Natura &Co Holding Shares subject to converted Avon PSU awards will be determined by assuming that applicable performance goals have been attained at target level. Any equity award granted after May 22, 2019 shall be subject to pro-rata vesting (as described in the applicable award agreement) upon certain terminations of the award holder’s employment. For more information on treatment of equity and equity-based awards, see the section of this joint proxy statement/prospectus entitled “Management and Compensation of Avon—Treatment of Equity and Equity-based Awards.”

 

Treatment of Cash Long-Term Incentive Awards

 

In connection with the Transaction, outstanding Avon Cash LTI Awards will continue to remain outstanding after the Transaction. Avon Cash LTI Awards that are subject to service-based vesting conditions will continue to be subject to such service-based vesting conditions. However, any such Avon Cash LTI Award that is subject to

 

 

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performance-based vesting will be converted into an award that is based solely on time-based vesting assuming, for purposes of determining the amount payable in respect of such Avon Cash LTI Award after such conversion, that applicable performance goals have been attained, as of the end of the applicable performance period, at the level at which such performance goals have been attained as of the closing (determined by Avon using good faith methodology subject to review and approval by Natura Cosméticos). Any payments in respect of Avon Cash LTI Awards that are granted as part of Avon’s 2019 long-term incentive program (or that are granted after the signing of the Merger Agreement with a payment calculation methodology that is similar that of the Avon Cash LTI Awards granted under the 2019 long-term incentive program) will equal (x) the grant date value of such award (or, in the case of any such award subject to performance based-vesting conditions, the value of such award determined as of the closing, as described above) multiplied by (y) a fraction, the numerator of which is the greater of (1) the NYSE closing price of an Avon Common Share on the day immediately prior to the Closing Date and (2) an amount equal to U.S.$13.91 multiplied by the Exchange Ratio, and the denominator of which is the closing price of an Avon Common Share on the grant date. Any Avon Cash LTI Award granted after May 22, 2019 shall be subject to pro-rata vesting (as described in the applicable award agreement) upon certain terminations of the award holder’s employment. For more information on treatment of cash long-term incentive awards, see the section of this joint proxy statement/prospectus entitled “Management and Compensation of Avon—Treatment of Cash Long-Term Incentive Awards.”

 

Interests of Certain Persons in the Transaction

 

Avon’s executive officers and directors have interests in the Transaction that are different from, or in addition to, the interests of Avon shareholders generally. These interests may include, but are not limited to, the continued engagement and/or employment, as applicable, of certain directors and executive officers of Avon, the engagement of certain directors of Avon as directors on the Natura &Co Holding board of directors, enhanced severance for certain executive officers of Avon upon a qualifying termination of employment in connection with the Transaction, and the payment of compensation previously deferred by certain Avon directors and executive officers and the indemnification of certain former Avon directors and executive officers by a subsidiary of Natura &Co Holding. These interests also include the treatment in the Transaction of equity awards held by Avon directors and executive officers, including the accelerated vesting and cash-out of certain awards in connection with the Transaction or in connection with a subsequent qualifying termination of employment. As of the date of this filing, there are no specific employment, equity or other agreements, arrangements or understandings between any of Avon’s directors or executive officers and Natura Cosméticos, Natura &Co Holding and their respective subsidiaries.

 

Avon’s board of directors was aware of the potentially differing interests of Avon directors and executive officers and considered them, among other matters, in reaching its decision to adopt the Merger Agreement, and to recommend that you vote in favor of the Transaction Proposal.

 

These interests are described in more detail under the section of this joint proxy statement/prospectus entitled “Management and Compensation of Avon—Interests of Avon’s Directors and Executive Officers in the Transaction.” Avon’s shareholders should take these interests into account in deciding whether to vote “FOR” the Transaction Proposal.

 

For further information with respect to arrangements between Avon and its executive officers and directors, as well as arrangements for Natura &Co Holding director nominees, see the information included under the section of this joint proxy statement/prospectus entitled “Interests of Certain Persons in the Transaction.”

 

Board of Directors and Management of Natura &Co Holding Following Completion of the Transaction

 

Upon the closing of the transactions contemplated by the Merger Agreement, Natura &Co Holding’s board of directors will consist of 13 members and be composed as follows: (i) three directors mutually agreed by Avon and Natura Cosméticos at closing, which directors shall be individuals who were members of Avon’s board of directors as of May 22, 2019 (the date the Merger Agreement was entered into), and (ii) ten directors designated by Natura Cosméticos.

 

 

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Out of the members of the Board of Directors, at least 2 or 20%, whichever is higher, must be independent directors, as defined in the Novo Mercado Rules. The qualification of the members appointed as independent directors will be resolved upon at the shareholders’ meeting that elects such independent directors. A director elected as permitted under Article 141, Paragraphs 4 and 5 of Law No. 6,404/76 will also be deemed an independent director if there is a controlling shareholder. Should compliance with the foregoing percentage requirement lead to a fractional number of directors, the number of directors will be rounded to the whole number immediately higher.

 

The number of directors to be elected for the upcoming term will be decided by a majority vote at the relevant shareholders’ meeting. A shareholder or a group of shareholders representing at least 10% of the share capital of Natura &Co Holding may separately elect up to one additional director. Additionally, shareholders representing a percentage of the share capital of Natura &Co Holding of between 5% and 10% (depending on the aggregate value of capital stock of Natura &Co Holding at such time, pursuant to the applicable CVM ruling) may request that the election of directors be subject to cumulative voting proceedings, as provided for in article 141 of the Brazilian Corporation Law and CVM Ruling 165.

 

Listing of Natura &Co Holding Shares

 

In connection with the closing of the Transaction, Natura &Co Holding will apply to list the Natura &Co Holding Shares on the B3, effective as of the Closing Date. It is a condition to the parties’ obligations to effect the Transaction that the Natura &Co Holding Shares be approved for listing on the B3, but such listing is subject to Natura &Co fulfilling all of the listing requirements of the B3 including the required official notice of issuance. There can be no assurance that the Natura &Co Holding Shares will be accepted for trading on the B3.

 

For more information regarding the listing and trading of Natura &Co Holding Shares, see the information included under the section “Information Required by B3 from Companies Listed on the Novo Mercado.”

 

Listing of Natura &Co Holding ADSs

 

In connection with the closing of the Transaction, Natura &Co Holding will apply to list the Natura &Co Holding ADSs on the NYSE, effective as of the Closing Date. It is a condition to the parties’ obligations to effect the Transaction that the Natura &Co Holding ADSs be authorized for listing on the NYSE, but such listing is subject to Natura &Co Holding fulfilling all of the listing requirements of the NYSE including the required official notice of issuance. There can be no assurance that the Natura &Co Holding ADSs will be accepted for trading on the NYSE.

 

Delisting and Deregistration of Avon Common Shares

 

After the Transaction is completed, the Avon Common Shares will be delisted from the NYSE and will be deregistered under the Exchange Act, after which Avon will no longer be required under SEC rules and regulations to file periodic reports with the SEC with respect to Avon Common Shares.

 

Comparison of the Rights of Holders of Natura &Co Holding Shares and Avon Shares

 

As a result of the Transaction, the holders of Avon Common Shares will become holders of Natura &Co Holding Shares, and their rights will be governed by Brazilian Law and the Natura &Co Holding Bylaws. Following the closing of the Transaction, former Avon shareholders will have different rights as Natura &Co Holding shareholders than they did as Avon shareholders. For a summary of the material differences between the rights of Avon shareholders and Natura Cosméticos shareholders, see the section of this joint proxy statement/prospectus entitled “Comparison of The Rights of Holders of Natura &Co Holding Shares and Avon Shares.”

 

Selected Financial Data of Natura &Co

 

For information on selected financial data of Natura &Co, see the section of this joint proxy statement/prospectus entitled “Selected Financial Data of Natura &Co.”

 

 

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Selected Financial Data of Avon

 

For information on selected financial data of Avon, see the section of this joint proxy statement/prospectus entitled “Selected Financial Data of Avon.”

 

Unaudited Pro Forma Condensed Financial Information

 

For information on unaudited pro forma condensed financial information, see the section of this joint proxy statement/prospectus entitled “Unaudited Pro Forma Condensed Financial Information.”

 

Comparative per Share Market Data

 

The following table presents the closing price per each Natura Cosméticos Share on the B3 and per each Avon Share on the NYSE, respectively, on (a) May 21, 2019, the last trading day prior to the date of public announcement of Natura Cosméticos and Avon of the execution of the Merger Agreement and (b)          , 2019, the last practicable trading day prior to the mailing of this joint proxy statement/prospectus.

 

Date 

Natura Cosméticos Share Closing Price (B3) 

Avon Share Closing
Price (NYSE) 

Implied Per Share Value of Merger Consideration 

  In reais In U.S.$(1) In U.S.$
May 21, 2019 56.20 14.50 3.20 4.35
   , 2019        

 

 

(1)Solely for the convenience of the reader, we have translated certain amounts included in this joint proxy statement/prospectus from reais into U.S. dollars using the exchange rate as reported by the Brazilian Central Bank as of December 31, 2018 for reais into U.S. dollars of R$3.875 per U.S.$1.00. The U.S. dollar equivalent information presented in this joint proxy statement/prospectus is provided solely for the convenience of investors and should not be construed as implying that the amounts in reais represent, or could have been or could be converted into, U.S. dollars at such rates or any other rate. See “Exchange Rates.”

 

Comparative Historical and Unaudited Pro Forma per Share Data

 

The following tables include historical and unaudited pro forma per share data. Pro forma per share data should be read in conjunction with the unaudited pro forma condensed financial information and the assumptions included under “Unaudited Pro Forma Condensed Financial Information.”

 

Natura Cosméticos Per Share Data

 

   As of and for the year ended December 31,
   2018  2017  2016  2015  2014
   (in reais)
Book value per share(1)    5.96    3.79    2.31    2.38    2.61 
Basic earnings per share    1.2735    1.5574    0.6895    1.1934    1.7064 
Diluted earnings per share    1.2713    1.5551    0.6875    1.1928    1.7057 
Cash dividends per share(2)    0.3515    0.4672    0.2523    0.8180    1.6319 

 

 

(1)Book value per share is calculated by dividing total equity attributable to the owners of Natura Cosméticos by the number of historical shares outstanding as of the end of the applicable period.

 

(2)Cash Dividends per share is calculated by dividing total dividends (including dividends and interest on equity) paid by us by the total historical number of shares outstanding as of the end of the applicable period.

 

 

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Avon Per Share Data

 

   As of and for the year ended December 31,
   2018  2017  2016  2015  2014
   (in U.S. dollars)
Book value per share (1)    (2.04)   (1.65)   (1.94)   (2.46)   0.67 
Basic earnings per share (2)    (0.10)   (0.00)   (0.25)   (1.81)   (0.79)
Diluted earnings per share (2)    (0.10)   (0.00)   (0.25)   (1.81)   (0.79)
Cash dividends per share (3)    0.00    0.00    0.00    0.24    0.24 

 

 

(1)Book value per share is calculated by dividing total equity attributable to the owners of Avon by the number of historical shares outstanding as of the end of the applicable period.

 

(2)Represents basic and diluted earnings per share from continuing operations.

 

(3)Cash Dividends per share is calculated by dividing total dividends paid by us by the total historical number of shares outstanding as of the end of the applicable period.

 

Pro Forma Per Share Data

 

 

As of and for the year ended December 31,

 

2018 

  (in U.S. dollars)
Book value per share(1) 4.432
Basic earnings per share(2) 0.054
Diluted earnings per share(2) 0.054

 

 

(1)Pro forma book value per share assumes that the Transaction was completed on December 31, 2018. Pro forma book value per share is calculated by dividing total pro forma equity attributable to the owners of the company by the number of pro forma shares outstanding as of December 31, 2018.

 

(2)Pro forma earnings per share and net income for the period per share assume that the Transaction was consummated on January 1, 2018. For additional information, please see the section of this joint proxy statement/prospectus entitled “Unaudited Pro Forma Condensed Financial Information.”

 

 

 

 

 

 

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Risk Factors

 

By voting in favor of the Transaction, Avon shareholders will be choosing to invest in Natura &Co Holding ADSs and Natura &Co Holding Shares. Investing in Natura &Co Holding ADSs and Natura &Co Holding Shares involves risks, some of which are related to the Transaction. In considering whether to vote for the Transaction, you should carefully consider the risks described below, as well as the other information included in or incorporated by reference into this joint proxy statement/prospectus, including the matters addressed in the section of this joint proxy statement/prospectus entitled “Cautionary Statement Concerning Forward-Looking Statements” and the risk factors described in Item 1A of Avon’s 2018 Form 10-K, as such risks may be updated or supplemented in Avon’s subsequently filed quarterly reports on Form 10-Q or current reports on Form 8-K. The business of the combined company, as well as the respective businesses of Natura &Co and Avon, as well as their respective financial condition or results of operations, could be materially adversely affected by any of these risks.

 

For information on where you can find the documents Avon has filed with the SEC and which are incorporated into this joint proxy statement/prospectus by reference, please see the sections of this joint proxy statement/prospectus entitled “Incorporation of Certain Documents by Reference” and “Where You Can Find More Information”.

 

Risks Relating to the Transaction

 

The timing and completion of the Transaction is subject to a number of important conditions and other uncertainties, and the Merger Agreement may be terminated before the completion of the Transaction in accordance with its terms. As a result, there is no assurance as to whether and when the Transaction will be completed.

 

Closing of the Transaction is subject to certain conditions, including (i) the Avon Shareholder Approval having been obtained in accordance with applicable law, (ii) approval of the Natura Restructuring and Mergers, including the issuance of the Natura &Co Holding Shares underlying the Natura &Co Holding ADSs constituting Common Stock Consideration and the other transactions contemplated by the Merger Agreement by the affirmative vote of the Founders, which will hold more than half of the voting shares of Natura &Co Holding and Natura Cosméticos in accordance with applicable law, (iii) the Natura Restructuring having been consummated, (iv) (1) the Natura &Co Holding ADSs to be issued in the Second Merger having been approved for listing on the NYSE, subject to official notice of issuance and (2) the Natura &Co Holding Shares to be issued in the Natura Restructuring and the Natura &Co Holding Shares underlying the Natura &Co Holding ADSs to be issued as Merger Consideration in respect of Avon Common Shares having been approved for listing on the B3, under the Novo Mercado listing segment, (v) this Form F-4 and a registration statement on Form F-6 relating to the registration under the Securities Act of the issuance of the Natura &Co Holding ADSs (the “Form F-6”) each becoming effective under the Securities Act, and the a registration statement on Form 8-A in connection with the registration under the Exchange Act of the Natura &Co Holding ADSs to be issued pursuant to the Merger Agreement and the underlying Natura &Co Holding Shares (the “Form 8-A”) becoming effective under the Exchange Act, and no stop order suspending the effectiveness of the Form F-4, the Form F-6 or the Form 8-A having been issued, and no proceedings for that purpose having been initiated or threatened, by the SEC, (vi) approval and review by the Administrative Council for Economic Defense (“CADE”) in Brazil and certain other jurisdictions required under the terms of the Merger Agreement having been obtained or received (or the waiting period with respect thereto having been expired or terminated) and (vii) no provision of any applicable law enjoining, prohibiting or otherwise making illegal the consummation of the Mergers, including the issuance of Natura &Co Holding Shares underlying the Natura &Co Holding ADSs as Merger Consideration, or the Natura Restructuring.

 

The failure to satisfy the foregoing conditions could delay completion of the Transaction for a significant period of time or prevent it from occurring. Any delay in completing the Transaction could cause the combined company not to realize some or all of the benefits that the parties expect the combined company to achieve if the Transaction is successfully completed within the expected timeframe. Further, there can be no assurance that the conditions to the closing of the Transaction will be satisfied or, so far as applicable, waived or that the Transaction will be completed. If these conditions are not satisfied or, if applicable, waived by July 22, 2020, the Merger Agreement may be terminated by either party and you will not receive the Merger Consideration. Likewise, the Transaction may be completed on terms that differ, perhaps substantially, from those described herein and in the Merger Agreement. For more information, see the section of this joint proxy statement/prospectus entitled “The Transaction Documents—The Merger Agreement—Conditions to the Mergers.”

 

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Failure to complete the Transaction could negatively impact the share price and the future business and financial results of Avon and Natura &Co.

 

If the Transaction is not completed for any reason, including as a result of Avon shareholders failing to adopt the Merger Agreement, the ongoing businesses of each of Natura &Co and Avon may be adversely affected and, without realizing any of the benefits of having completed the Transaction, Avon and Natura &Co would be subject to a number of risks, including the following:

 

·Avon may be required, under certain circumstances, to pay Natura Cosméticos a termination fee of approximately U.S.$78.6 million;

 

·Natura Cosméticos or Natura &Co Holding may be required, under certain circumstances, to pay Avon a termination fee of approximately U.S.$242 million or U.S.$133 million, depending on the circumstances, and such payment could materially and adversely affect our liquidity;

 

·Natura Cosméticos and Avon may experience negative reactions from the financial markets, including negative impacts on their share prices; and

 

·Natura &Co and Avon may experience negative reactions from their customers, regulators and employees.

 

In addition, Natura Cosméticos and Avon could be subject to litigation related to any failure to complete the Transaction or related to any enforcement proceeding commenced against Natura Cosméticos, Avon or Natura &Co Holding to perform its obligations under the Merger Agreement. If the Transaction is not completed, these risks may materialize and may adversely affect Natura Cosméticos’s or Avon’s businesses, financial condition, financial results and/or share price. For more information about the Merger Agreement, see the section of this joint proxy statement/prospectus entitled “The Transaction Documents—The Merger Agreement.”

 

In order to complete the Transaction, Natura Cosméticos and Avon must obtain certain governmental and regulatory approvals, and if such approvals are not granted or are granted with conditions, completion of the Transaction may be jeopardized or the anticipated benefits of the Transaction could be reduced.

 

Consummation of the Transaction is subject to governmental and regulatory approvals, including approval and review by the Administrative Council for Economic Defense (“CADE”) in Brazil and certain other jurisdictions (or the waiting period with respect thereto shall have expired or been terminated). There is no assurance that all governmental and regulatory approvals will be obtained.

 

In addition, certain of the governmental authorities from which these authorizations are required have broad discretion in administering the governing regulations. Prior to their authorization of the Transaction, these governmental authorities may impose requirements, limitations or costs or require divestitures or place restrictions on the conduct of Natura &Co Holding’s business after completion of the Transaction. There can be no assurance that regulators will not impose conditions, terms, obligations or restrictions and that such conditions, terms, obligations or restrictions will not have the effect of delaying completion of the Transaction or imposing additional material costs on or materially limiting the revenues of Natura &Co Holding following the Transaction, or otherwise adversely affecting, including to a material extent, Natura &Co Holding’s strategic plans and its businesses and results of operations after completion of the Transaction. In addition, there can be no assurance that these conditions, terms, obligations or restrictions will not result in the delay or abandonment of the Transaction.

 

Furthermore, governmental authorities could seek to block or challenge the Transaction as they deem necessary or desirable in the public interest at any time, including after completion of the Transaction. In addition, in some circumstances, a competitor, customer or other third party could initiate a private action under antitrust laws challenging or seeking to enjoin a portion or all of the Transaction, before it is consummated. Natura &Co and Avon may not prevail and may incur significant costs in defending or settling any action under antitrust laws. For more information, see the section of this joint proxy statement/prospectus entitled “The Transaction Documents—The Merger Agreement—Efforts to Complete the Merger.”

 

The expected benefits from operating as a combined enterprise with Avon may not be achieved.

 

The success of the Transaction will depend, in part, on the ability of Natura &Co and Avon to realize the expected benefits from integrating their respective operations. No assurance can be given that Natura &Co and Avon

 

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will be able to integrate their respective operations without encountering difficulties, which may include, among other things, the loss of key employees, diversion of management attention, the disruption of our respective ongoing businesses or possible inconsistencies in standards, procedures and policies. Additionally, Natura &Co and Avon may be required to make unanticipated capital expenditures or investments in order to maintain, integrate, improve or sustain our operations. Integrating our respective operations may involve additional unanticipated costs and financial risks, such as the incurrence of unexpected write-offs, the possible effect of adverse tax and accounting treatments and unanticipated or unknown liabilities relating to Natura &Co or Avon. All of these factors could decrease or delay the expected accretive effect of the Transaction.

 

Even if our respective operations are successfully integrated, we may not realize the full benefits of the Transaction, including the synergies, cost savings and growth opportunities, within the expected time frame, if at all. Natura &Co and Avon continue to evaluate the estimates of synergies to be realized from, and the fair value accounting allocations associated with, the Transaction. However, the actual cost savings, the costs required to realize the cost savings and the source of the cost savings could differ materially from the estimates of Natura &Co and Avon.

 

Further, Natura &Co and Avon may not achieve the targeted operating or long-term strategic benefits of the Transaction. In addition, Natura &Co and Avon may not accelerate growth by increasing investments in digital, product innovation and brand initiatives. If Natura &Co and Avon are unable to achieve the objectives, or are not able to achieve our objectives on a timely basis, the anticipated benefits of the Transaction may not be realized fully or at all. An inability to realize the full extent of, or any of, the anticipated benefits of the Transaction could have an adverse effect on the financial condition, results of operations and cash flows of Natura &Co and Avon and could limit Natura &Co’s and Avon’s ability to achieve the anticipated benefits of the Transaction.

 

Third parties may terminate or alter existing contracts or relationships with Avon or Natura &Co as a result of the announcement, pendency or completion of the Transaction.

 

Each of Natura &Co and Avon has contracts with customers, employees, independent beauty consultants, Sales Representatives, suppliers, vendors, distributors, landlords, lenders, licensors, joint venture partners and other business partners, and these contracts may require Natura &Co or Avon, as applicable, to obtain consent from these other parties in connection with the Transaction. If these consents cannot be obtained, the counterparties to these contracts may seek to terminate or otherwise materially adversely alter the terms of such contracts with either or both parties following the Transaction, which in turn may result in Natura &Co or Avon suffering a loss of potential future revenue, incurring contractual liabilities or losing rights that are material to their respective businesses. Further, parties with which Natura &Co or Avon have business and operational relationships may experience uncertainty as to the future of such relationships and may delay or defer certain business decisions, seek alternative relationships with third parties or seek to alter their present business relationships with Natura &Co or Avon, as applicable. Parties with whom Natura &Co or Avon otherwise may have sought to establish business relationships may seek alternative relationships with third parties.

 

In addition, current and prospective employees, independent beauty consultants and Sales Representatives may experience uncertainty about their roles following the Transactions and such uncertainty may have an effect on the corporate culture of Natura &Co or Avon, respectively. There can be no assurance Natura &Co or Avon will be able to attract and retain key talent, including senior leaders, to the same extent that each of Natura &Co and Avon have previously been able to attract and retain employees, independent beauty consultants and Sales Representatives. Any loss or distraction of Natura &Co’s or Avon’s customers, employees, independent beauty consultants, Sales Representatives, suppliers, vendors, distributors, landlords, lenders, licensors, joint venture partners and other business partners, could have a material adverse effect on the business, financial condition, operating results and cash flows of Natura &Co and Avon and could limit Natura &Co’s and Avon’s ability to achieve the anticipated benefits of the Transaction. The adverse effect of such disruptions could also be exacerbated by a delay in the completion of the Transaction or the termination of the Merger Agreement.

 

Your ownership percentage in Natura &Co Holding will be less than the ownership percentage you currently hold in Avon.

 

Your ownership percentage in Natura &Co Holding following the Transaction will be less than your existing ownership percentage in Avon as a result of dilution attributable to the relative equity values of the companies involved in the Transaction. Based on the number of Natura Cosméticos Shares and securities convertible into

 

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Natura Cosméticos Shares and the number of Avon Shares and securities convertible into Avon Shares, in each case outstanding as of May 21, 2019, it is anticipated that immediately following completion of the Transaction, former holders of Avon Common Shares will own approximately 24% of Natura &Co Holding and former Natura Cosméticos shareholders will own approximately 76% of Natura &Co Holding.

 

The Transaction may not result in increased share liquidity for Natura &Co Holding’s shareholders, including former Avon shareholders, following the Transaction.

 

Natura &Co is undertaking the Transaction because it believes that the Transaction will provide Natura &Co and Avon, and their respective shareholders, with a number of advantages, including providing shareholders of Natura Cosméticos and Avon with securities that Natura &Co expects will enjoy greater market liquidity than the securities these shareholders currently hold. However, the Transaction may not accomplish these objectives. Natura &Co cannot predict whether a liquid market for the Natura &Co Holding Shares and Natura &Co Holding ADSs will be maintained. If the Transaction does not result in increased liquidity for the securities held by shareholders of Natura Cosméticos and Avon, you may experience a decrease in your ability to sell your Natura &Co Holding Shares and Natura &Co Holding ADSs compared to your ability to sell the Avon Shares you currently hold.

 

Natura &Co Holding will be more leveraged than either Avon or Natura &Co currently are and a material portion of its cash flow will have to be used to service its obligations.

 

As of December 31, 2018, Avon had U.S.$1,594 million of consolidated total debt. As of December 31, 2018, Natura &Co had R$8,440 million of consolidated total debt (U.S.$2,178 million). See “Unaudited Pro Forma Condensed Financial Information.” After giving effect to the financing arrangements entered into by Natura &Co to, among other things, finance the payment of amounts payable in cash in connection with the Merger Agreement, including the Preferred Stock Consideration and all payments, fees and expenses payable by them arising out of the Merger Agreement, and the Avon Notes and the Credit Agreement, assuming completion of the Transaction and the full disbursement of such financing commitments, Natura &Co Holding will have R$16,200 million (U.S.$ 4,181 million) of consolidated total debt on a pro forma basis. As a result, following the completion of the Transaction, holders of Natura &Co Holding Shares and Natura &Co Holding ADSs will hold securities in a company that is more leveraged than the company in which they currently hold their securities.

 

Natura &Co Holding is therefore expected to be subject to the risks normally associated with significant amounts of debt, which could have important consequences to you. Natura &Co Holding’s indebtedness could, among other things: (i) require Natura &Co Holding to use a substantial portion of its cash flow from operations to pay its obligations, thereby reducing the availability of Natura &Co Holding’s cash flow to fund working capital, operations, capital expenditures, dividend payments, strategic acquisitions, expansion of its operations and other business activities; (ii) increase Natura &Co Holding’s vulnerability to general adverse economic and industry conditions; (iii) limit, along with financial and other restrictive covenants in Natura &Co Holding’s debt instruments, Natura &Co Holding’s ability to borrow additional funds or dispose of assets; and (iv) place Natura &Co Holding at a competitive disadvantage compared to its competitors that have less debt.

 

Natura &Co Holding, Natura &Co and Avon may also need to refinance all or a portion of their respective debt on or before maturity and may not be able to do this on commercially reasonable terms or at all.

 

Certain of Avon’s outstanding indebtedness requires lender waivers or consents in connection with the Transaction. If such consents are not obtained, this indebtedness could be accelerated, and we may not be able to refinance such indebtedness on favorable terms or at all following the Transaction.

 

The terms of certain of Avon’s indebtedness include covenants and/or events of default that will be breached or triggered (as applicable) upon a change of control of Avon, unless we obtain prior creditor consent. In the case of the Credit Agreement (as defined the section of this joint proxy statement/prospectus entitled “The Transaction Documents—The Merger Agreement—Debt Financing”), maturity of such facility will automatically accelerate and, in the case of the Avon Notes (as defined the section of this joint proxy statement/prospectus entitled “The Transaction Documents—The Merger Agreement—Debt Financing”), holders thereof will have the option to have their notes repurchased at a purchase price of 101% plus accrued and unpaid interest, in each case upon a change of control of Avon, unless prior consent of the holders thereof is obtained prior to completion of such change of control event. Furthermore, many of Avon’s debt instruments contain cross-acceleration provisions that would be triggered upon acceleration of any of Avon’s material indebtedness. The terms of certain of Natura &Co’s indebtedness also

 

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contain cross-acceleration provisions that could be triggered by such acceleration upon or following the completion of the Transaction.

 

We have procured backstop financing commitments from financial institutions (in the form of a debt commitment letter to provide a senior secured bridge facility) in an amount up to U.S.$1.6 billion, the proceeds of which, together with cash on hand, would cover the amounts payable in cash in connection with the Merger Agreement, including the Preferred Stock Consideration and all payments, fees and expenses payable by them arising out of the Merger Agreement, and the Avon Notes and the Credit Agreement, in the event that such debt is accelerated and the requisite consents or waivers, as applicable, from holders of such debt is not obtained. The availability of the committed backstop financing is subject to customary conditions that would need to be met prior to funding of such facility. Additionally, there can be no guarantee that such funding, or any alternate financing obtained in lieu thereof, would be on the same terms that Avon could have received prior to the Transaction.

 

If waivers of change of control provisions or requisite consents from holders of such indebtedness, as applicable, to the transfer of control of Avon to Natura &Co Holding as a result of the completion of the Transaction are not obtained, or if sufficient consents to the waiver of the applicable cross-acceleration provisions in such indebtedness are not obtained, or if Avon and/or Natura &Co are unable to refinance or prepay such indebtedness prior to the completion of the Transaction, a significant portion of Avon’s indebtedness could be accelerated by the holders of such debt upon completion of the Transaction. The resulting acceleration of Avon’s indebtedness could adversely affect Natura &Co Holding’s, Natura &Co’s and Avon’s financial condition.

 

Since Natura &Co Holding will be a holding company, it will depend on limited forms of funding to fund its operations.

 

As a holding company, Natura &Co Holding will have no significant assets other than the shares of its subsidiaries. Natura &Co Holding’s primary sources of funding and liquidity will be dividends from its subsidiaries, sales of the interests in its subsidiaries and direct borrowings and issuances of equity or debt securities. Natura &Co Holding’s ability to meet the obligations to its direct creditors and employees and other liquidity needs and regulatory requirements will depend on timely and adequate distributions from its subsidiaries and its ability to sell securities or obtain credit from its lenders.

 

Natura &Co Holding’s ability to pay operating and financing expenses and dividends will depend primarily on the receipt of sufficient funds from its principal operating subsidiaries. Statutory provisions regulate Natura &Co Holding’s operating subsidiaries’ ability to pay dividends. If Natura &Co Holding’s operating subsidiaries are unable to pay dividends to Natura &Co Holding in a timely manner and in amounts sufficient to pay for Natura &Co Holding’s operation and financing expenses or to declare and pay dividends and to meet its other obligations, Natura &Co Holding may not be able to pay dividends or it may need to seek other sources of funding.

 

Furthermore, Natura &Co Holding’s inability to sell its securities or obtain funds from its lenders on favorable terms, or at all, could also result in Natura &Co Holding experiencing financial difficulties, among other adverse effects. There has been no prior market for the Natura &Co Holding ADSs.

 

Given that Natura &Co Holding was formed as a new entity, there will be no public market for Natura &Co Holding Shares and Natura &Co Holding ADSs prior to their issuance in connection with the Transaction. An active public market in the Natura &Co Holding Shares and Natura &Co Holding ADSs may not develop or be sustained after their issuance. Natura &Co Holding’s inability to meet its liquidity needs and regulatory requirements may disrupt its operations at the holding company level.

 

The Merger Agreement subjects the Natura Entities and Avon to restrictions on their respective business activities prior to completion of the merger.

 

The Merger Agreement subjects the Natura Entities and Avon to restrictions on their respective business activities and obligates Natura Entities and Avon to generally operate the Natura Entities’ and Avon’s business, respectively, in the ordinary course in all material respects consistent with past practice prior to completion of the Transaction. These restrictions could prevent Natura &Co and Avon from pursuing attractive business opportunities that arise prior to the completion of the Transaction and are outside the ordinary course of business, or otherwise have an adverse effect on Natura &Co and Avon results of operations, cash flows and financial position.

 

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The Merger Agreement contains provisions that restrict Natura &Co’s and Avon’s ability to pursue alternatives to the Transaction and, in specified circumstances, could require Natura Cosméticos or Natura &Co Holding, on the one hand, or Avon, on the other hand, to pay the other party a termination fee.

 

As described in the sections entitled “The Transaction Documents—The Merger Agreement—No Solicitation of an Avon Acquisition Proposal; Avon Adverse Recommendation Change” and “The Transaction Documents—Merger Agreement—No Solicitation of Natura Acquisition Proposal” of this joint proxy statement/prospectus, each of Natura &Co and Avon are subject to restrictions on their ability to pursue alternatives to the Transaction. These provisions could discourage a third party that may have an interest in acquiring all or a significant part of either company from considering or proposing such an acquisition, even if such third party were prepared to enter into a transaction that would be more favorable to the companies and their respective shareholders than the Transaction.

 

Some of the conditions to the Transaction and termination rights may be waived by Natura &Co Holding, Natura Cosméticos or Avon without resoliciting Natura Cosméticos or Avon shareholder approval of the proposals approved by them.

 

Some of the conditions and termination rights set forth in the Merger Agreement may be waived by Natura Cosméticos, Avon or Natura &Co Holding, subject to certain limitations. If any conditions or termination rights are waived, Avon and Natura &Co will evaluate whether amendment of this joint proxy statement/prospectus and resolicitation of proxies would be warranted. Subject to applicable law, if Avon and Natura &Co determine that resolicitation of Avon’s or Natura Cosméticos’s shareholders is not warranted, the parties will have the discretion to complete the Transaction without seeking further Natura Cosméticos shareholder approval or Avon shareholder approval.

 

Natura &Co and Avon may have difficulty attracting, motivating and retaining executives and other key employees due to uncertainty associated with the Transaction.

 

Natura &Co’s success after completion of the Transaction will depend in part upon the ability of Natura &Co to retain key employees of Natura &Co and Avon. Competition for qualified personnel can be intense. Current and prospective employees of Natura &Co or Avon may experience uncertainty about the effect of the Transaction, which may impair Natura &Co’s and Avon’s ability to attract, retain and motivate key management, sales, marketing, technical and other personnel prior to and following the Transaction. Employee retention may be particularly challenging during the pendency of the Transaction, as employees of Natura &Co and Avon may experience uncertainty about their future roles with the combined company.

 

In addition, if key employees of Natura &Co or Avon depart, the integration of the companies may be more difficult and the combined company’s business following the Transaction may be harmed. Furthermore, the combined company may have to incur significant costs in identifying, hiring, training and retaining replacements for departing employees and may lose significant expertise and talent relating to the businesses of Natura &Co or Avon, and the combined company’s ability to realize the anticipated benefits of the Transaction may thus be adversely affected. Furthermore, there could be disruptions to or distractions for the workforce and management associated with activities of labor unions or works councils or integrating employees into the combined company. Accordingly, no assurance can be given that Natura &Co will be able to attract or retain key employees of Natura &Co and Avon to the same extent that those companies have been able to attract or retain their own employees in the past.

 

The Transaction may be subject to litigation, which could delay the Transaction and prevent the Transaction from being completed.

 

Natura &Co Holding, Natura &Co and Avon may in the future be party to legal proceedings and claims related to the Transaction. Legal challenges to the Transaction could result in an injunction, preventing or delaying the completion of the Transaction.

 

Following the completion of the Transaction, Natura &Co may have increased exposures.

 

Although Natura &Co and Avon hope that the combined operations of the business will result in substantial synergies, the integration of two large companies faces significant challenges and adds additional potential exposure to adverse effects arising from courts decisions, changes in tax laws or regulations.

 

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In addition, the integration of business could increase the number of audits and notices of infractions following the completion of the Transaction as any tax investigations, rulings or decisions affecting any of Natura &Co or any of its subsidiaries would also affect Avon as a subsidiary of Natura &Co Holding.

 

In particular, both Natura &Co and Avon conduct their respective businesses in Brazil in a similar way, therefore, following the completion of the Transaction, any such changes would have a material effect on the combined business of Natura &Co Holding as they would affect each of its subsidiaries operating in Brazil, including both Natura &Co and Avon.

 

Avon’s executive officers and directors have interests in the Transaction that may be different from the interests of Avon shareholders generally.

 

When considering the recommendation of Avon’s board of directors that Avon’s shareholders adopt the Merger Agreement, Avon shareholders should be aware that directors and executive officers of Avon have certain interests in the Transaction that may be different from or in addition to the interests of Avon shareholders generally. These interests include, but are not limited to, the treatment of Avon equity compensation awards in the Mergers, positions as directors or employees of Natura &Co Holding following completion of the Transaction, enhanced severance for certain executive officers of Avon upon a qualifying termination of employment in connection with the Transaction, the payment of compensation previously deferred by certain directors and the indemnification of former Avon directors and executive officers by Natura &Co Holding or a subsidiary of Natura &Co Holding. Avon’s board of directors was aware of these interests and considered them, among other things, in evaluating and negotiating the Merger Agreement and the Transaction and in recommending that the Avon shareholders adopt the Merger Agreement.

 

Please see the section of this joint proxy statement/prospectus entitled “Management and Compensation of Avon—Interests of Avon’s Directors and Executive Officers in the Transaction.”

 

The opinions of Avon’s and the independent non-Cerberus directors’ respective financial advisors, Goldman Sachs and PJT Partners, will not reflect changes in circumstances between the signing of the Merger Agreement and consummation of the Transaction.

 

Neither Avon nor the independent non-Cerberus directors have obtained updated opinions in respect of the consideration to be paid to Avon shareholders in connection with the Transaction from their respective financial advisors, Goldman Sachs and PJT Partners, as of the date of this proxy statement/prospectus and do not expect to receive updated opinions prior to the completion of the Transaction. Changes in the operations and prospects of Avon and Natura &Co, general market and economic conditions and other factors that may be beyond the control of Avon and Natura &Co, and on which the opinions of Goldman Sachs and PJT Partners were based, may significantly alter the value of Avon and Natura &Co or the price of Natura &Co Holding Shares and Natura &Co Holding ADSs by the time the Transaction is completed. The opinions do not speak as of the time the Transaction will be completed or as of any date other than the date that such opinions were issued. Because Goldman Sachs and PJT Partners will not be updating their opinions, which were issued in connection with the execution of the Merger Agreement on May 22, 2019, the opinions will not address the fairness of the Exchange Ratio or Transaction Exchange Ratios from a financial point of view at the time the Transaction is completed. The recommendation of the Avon board of directors that Avon shareholders vote “FOR” the Transaction Proposal, “FOR” the Advisory Compensation Proposal and “FOR” the Adjournment Proposal, however, are made as of the date of this joint proxy statement/prospectus. For a description of the opinions that Avon and the independent non-Cerberus directors received from their respective financial advisors, Goldman Sachs and PJT Partners, see the sections of this joint proxy statement/prospectus entitled “The Transaction—Opinion of Avon’s Financial Advisor” and “The Transaction—Opinion of the Independent Non-Cerberus Directors’ Financial Advisor.”

 

Natura &Co and Avon will incur significant transaction and merger-related costs in connection with the Transaction.

 

Natura &Co and Avon have incurred and expect to incur a number of non-recurring direct and indirect costs associated with the Transaction. These costs and expenses include fees paid to financial, legal, accounting and other advisors, severance and other potential employment-related costs, including payments that may be made to certain Natura &Co and Avon executives, filing fees, printing expenses and other related charges. Some of these costs are payable by Natura &Co and Avon regardless of whether the Transaction is completed. There are also processes,

 

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policies, procedures, operations, technologies and systems that must be integrated in connection with the Transaction and the integration of the two companies’ businesses. While both Natura &Co and Avon have assumed that a certain level of expenses would be incurred in connection with the Transaction and the other transactions contemplated by the Merger Agreement and continue to assess the magnitude of these costs, there are many factors beyond their control that could affect the total amount or the timing of the integration and implementation expenses.

 

There may also be additional unanticipated significant costs in connection with the Transaction that Natura &Co and Avon may not recover. These costs and expenses could reduce the realization of efficiencies and strategic benefits Natura &Co and Avon expect Natura &Co to achieve from the Transaction. Although Natura &Co and Avon expect that these benefits will offset the transaction expenses and implementation costs over time, this net benefit may not be achieved in the near term or at all.

 

Risks Relating to the Combined Company Following Completion of the Transaction

 

The combined company may not realize the cost savings, synergies and other benefits that the parties expect to achieve from the Transaction.

 

The combination of two independent companies is a complex, costly and time-consuming process. As a result, the combined company will be required to devote significant management attention and resources to integrating the business practices and operations of Natura &Co and Avon. The integration process may disrupt the business of either or both of the companies and, if implemented ineffectively, could preclude realization of the full benefits expected by Natura &Co and Avon from the Transaction. The failure of the combined company to meet the challenges involved in successfully integrating the operations of Natura &Co and Avon or otherwise to realize the anticipated benefits of the Transaction could cause an interruption of the activities of the combined company and could seriously harm its results of operations. In addition, the overall integration of the two companies may result in material unanticipated problems, expenses, liabilities, competitive responses, loss of client relationships and diversion of management’s attention, and may cause the combined company’s share price to decline. The difficulties of combining the operations of the companies include, among others:

 

·managing a significantly larger company;

 

·coordinating geographically separate organizations;

 

·the potential diversion of management focus and resources from other strategic opportunities and from operational matters;

 

·aligning and executing the strategy of the combined company;

 

·retaining existing independent beauty consultants and Sales Representatives and attracting new independent beauty consultants and Sales Representatives;

 

·retaining existing customers and attracting new customers;

 

·maintaining employee morale and retaining key management and other employees;

 

·integrating two unique business cultures, which may prove to be incompatible;

 

·the possibility of faulty assumptions underlying expectations regarding the integration process;

 

·consolidating corporate and administrative infrastructures and eliminating duplicative operations;

 

·coordinating distribution and marketing efforts;

 

·integrating information technology, communications and other systems;

 

·changes in applicable laws and regulations;

 

·managing tax costs or inefficiencies associated with integrating the operations of the combined company;

 

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·unforeseen expenses or delays associated with the Transaction; and

 

·taking actions that may be required in connection with obtaining regulatory approvals.

 

Many of these factors will be outside of the combined company’s control and any one of them could result in increased costs, decreased revenues and diversion of management’s time and energy, which could materially impact the combined company’s business, financial condition and results of operations. In addition, even if the operations of Natura &Co and Avon are integrated successfully, the combined company may not realize the full benefits of the Transaction, including the synergies, cost savings or sales or growth opportunities that Natura &Co and Avon expect. These benefits may not be achieved within the anticipated time frame, or at all. As a result, Natura &Co and Avon cannot assure you that the combination of Natura &Co and Avon will result in the realization of the full benefits anticipated from the Transaction.

 

Certain of the combined company’s debt instruments will require it to comply with certain covenants.

 

These restrictions could affect the combined company’s ability to operate its business and may limit its ability to react to market conditions or take advantage of potential business opportunities as they arise. For example, such restrictions could adversely affect the combined company’s ability to finance its operations, make strategic acquisitions, investments or alliances, restructure its organization or finance its capital needs. Additionally, the combined company’s ability to comply with these covenants and restrictions may be affected by events beyond its control, such as prevailing economic, financial, regulatory and industry conditions. If it breaches any of these covenants or restrictions, the combined company could be in default under one or more of its debt instruments, which, if not cured or waived, could result in acceleration of the indebtedness under such agreements and cross-defaults under its other debt instruments. Any such actions could result in the enforcement of its lenders’ rights and/or force the combined company into bankruptcy or liquidation, which could have a material adverse effect on the combined company’s business, financial condition and results of operations.

 

The combined company’s inability to integrate recently acquired businesses or to successfully complete future acquisitions could limit its future growth or otherwise be disruptive to its ongoing business.

 

From time to time, the combined company expects it will pursue acquisitions in support of its strategic goals. In connection with any such acquisitions, the combined company could face significant challenges in managing and integrating its expanded or combined operations, including acquired assets, operations and personnel. There can be no assurance that acquisition opportunities will be available on acceptable terms or at all or that Natura &Co Holding will be able to obtain necessary financing or regulatory approvals to complete potential acquisitions. The combined company’s ability to succeed in implementing its strategy will depend to some degree upon the ability of its management to identify, complete and successfully integrate commercially viable acquisitions. Acquisition transactions may disrupt the combined company’s ongoing business and distract management from other responsibilities.

 

The combined company’s information technology systems may be vulnerable to hacker intrusion, malicious viruses and other cybercrime attacks, which may harm its business and expose the combined company to liability.

 

The combined company’s operations will depend to a great extent on the reliability and security of its information technology system, software and network, which are subject to damage and interruption caused by human error, problems relating to telecommunications networks, software failure, natural disasters, sabotage, viruses and similar events. Any interruption in the combined company’s systems could have a negative effect on the quality of products and services offered and, as a result, on customer demand and therefore volume of sales.

 

The combined company will be exposed to significant risks in relation to compliance with anti-corruption laws and regulations and economic sanctions programs.

 

Doing business on a worldwide basis will require the combined company to comply with the laws and regulations of various jurisdictions. In particular, the combined company’s international operations are subject to anti-corruption laws and regulations, such as, among others, the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”), the U.K. Bribery Act of 2010 (the “Bribery Act”), the Brazilian Law No. 12,846/13, Decree No. 8,420, dated March 18, 2015 (Brazilian Anti-corruption Regulatory Decree); Decree-Law No. 2,848, dated December 7,

 

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1940 (Criminal Code); Federal Law No. 8,429, dated June 2, 1992 (Brazilian Law of Administrative Improbity); Law No. 8,666, dated June 21, 1993 (Brazilian Public Procurement Law); Law No. 9,504, dated September 30, 1997 (Electoral Code); (g) Law No. 9,613, dated March 3, 1998 (Anti-Money Laundering Law); and Law No. 12,813, dated May 16, 2013 (Brazilian Conflict of Interest Law) (together, the “Brazilian Anti-Corruption Act”), and economic and trade sanctions, including those administered by the United Nations, the European Union, the Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”) and the U.S. Department of State. The FCPA prohibits providing anything of value to foreign officials for the purposes of obtaining or retaining business or securing any improper business advantage. The combined company may deal with both governments and state-owned business enterprises, the employees of which are considered foreign officials for purposes of the FCPA. The provisions of the Bribery Act extend beyond bribery of foreign public officials and are more onerous than the FCPA in a number of other respects, including jurisdiction, non-exemption of facilitation payments and penalties. Economic and trade sanctions restrict the combined company’s transactions or dealings with certain sanctioned countries, territories and designated persons.

 

As a result of doing business in foreign countries, including through partners and agents, the combined company will be exposed to a risk of violating anti-corruption laws and sanctions regulations. Some of the international locations in which the combined company will operate have developing legal systems and may have higher levels of corruption than more developed nations. The combined company’s continued expansion and worldwide operations, including in developing countries, its development of joint venture relationships worldwide and the employment of local agents in the countries in which the combined company will operate increases the risk of violations of anti-corruption laws and economic and trade sanctions. Violations of anti-corruption laws and economic and trade sanctions are punishable by civil penalties, including fines, denial of export privileges, injunctions, asset seizures, debarment from government contracts (and termination of existing contracts) and revocations or restrictions of licenses, as well as criminal fines and imprisonment. In addition, any major violations could have a significant impact on the combined company’s reputation and consequently on its ability to win future business.

 

Natura &Co and Avon believe that the combined company will have a strong culture of compliance and adequate systems of internal control, including procedures to minimize and detect fraud in a timely manner, and Natura &Co and Avon will seek to continuously improve the combined company’s systems of internal controls and to remedy any weaknesses identified. There can be no assurance, however, that the policies and procedures will be followed at all times or will effectively detect and prevent violations of the applicable laws by one or more of the combined company’s employees, consultants, agents or partners and, as a result, the combined company could be subject to penalties and material adverse consequences on its business, financial condition or results of operations.

 

The Unaudited Pro Forma Condensed Financial Information included in this joint proxy statement/prospectus may not be representative of our results after the Transaction.

 

The Unaudited Pro Forma Condensed Financial Information (as defined herein) included elsewhere in this joint proxy statement/prospectus has been presented for informational purposes only and is not necessarily indicative of the financial position or results of operations that actually would have occurred had the transactions been consummated as of the dates indicated, nor is it indicative of the future operating results or financial position of Natura &Co Holding after the assumed consummation of the Transaction. The Unaudited Pro Forma Condensed Financial Information reflects adjustments, which are based upon preliminary estimates, to allocate the purchase price to Avon’s assets and liabilities. The purchase price allocation reflected in the Unaudited Pro Forma Condensed Financial Information included elsewhere in this joint proxy statement/prospectus is preliminary, and the final allocation of the purchase price will be based upon the final fair value calculations of the identifiable assets and liabilities of Avon as of the date of the completion of the Transaction.

 

The Unaudited Pro Forma Condensed Financial Information does not reflect future events that may occur, including the costs related to a potential integration and any future nonrecurring charges resulting from the Transaction, and does not consider potential impacts of current market conditions on revenues or expenses efficiencies. The Unaudited Pro Forma Condensed Financial Information is based in part on certain assumptions that we believe are reasonable under the circumstances and for the specific purposes noted above. Our assumptions may not prove to be accurate over time.

 

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The financial analyses and projections considered by Avon and Natura &Co may not be realized.

 

The financial analyses and projections considered by Avon and Natura &Co reflect numerous estimates and assumptions that are inherently uncertain with respect to industry performance and competition, general business, economic, market and financial conditions and matters specific to Avon’s and Natura &Co’s businesses, including the factors described or referenced under the section of this joint proxy statement/prospectus entitled “Cautionary Statement Concerning Forward-Looking Statements” and/or listed under the section of this joint proxy statement/prospectus entitled “Risk Factors,” all of which are difficult to predict and many of which are beyond Avon’s and Natura &Co’s control. There can be no assurance that the financial analyses and projections considered by Avon and Natura &Co will be realized or that actual results will not materially vary from such financial analyses and projections. In addition, since the financial projections cover multiple years, such information by its nature becomes less predictive with each successive year.

 

The combined company is exposed to foreign currency exchange risk.

 

The combined company will transact business in numerous countries around the world and expects that a significant portion of its business will continue to take place in international markets. Natura &Co Holding will prepare and present its consolidated financial statements in its functional currency, which is the Brazilian real, while the financial statements of each of its subsidiaries will be prepared in the functional currency of that entity. Accordingly, fluctuations in the exchange rate of the functional currencies of the combined company’s foreign currency entities against the presentation currency of Natura &Co Holding will impact its results of operations and financial condition. As such, it is expected that the combined company’s revenues and earnings will continue to be exposed to the risks that may arise from fluctuations in foreign currency exchange rates, which could have a material adverse effect on Natura &Co Holding’s business, results of operation or financial condition.

 

Additionally, the combined company will be exposed to numerous other risks currently faced by Natura &Co and Avon, including interest rate risk, commodity risk, and other market risks. Please see the section of this joint proxy statement/prospectus entitled “Risk Factors—Risks Related to Our Business and Industries in Which We Operate” and the section entitled “Risk Factors” in the Avon 2018 Form 10-K.

 

Risks Related to Our Business and Industries in Which We Operate

 

Our business depends on highly recognized brands. We may not be able to maintain and enhance our brands, or we may receive unfavorable customer complaints or negative publicity, which could adversely affect our brands.

 

We believe that our brands (principally Natura, The Body Shop and Aesop, among others) contribute significantly to the success of our business. We also believe that maintaining and enhancing our brands is critical to maintaining and expanding our base of customers, vendors and independent beauty consultants. Maintaining and enhancing our brands will also depend largely on our ability to continue to create the best customer purchasing experience, through a pleasant environment at all of our points of sale, and based on our competitive pricing, and large assortment and high-quality of the products and services we offer, together with the range and convenience of product delivery options. If we are unable to meet these standards, our business and results of operations may be adversely affected.

 

Complaints from customers or negative publicity about the products we sell, the prices we charge or services we provide could in the future reduce consumer confidence and the use of our services and adversely affect our business. In addition, some of the products we sell may expose us to product liability claims arising from personal injury and may require product recalls or other actions. To maintain good customer relations, we need to adequately train and manage our in-store employees who are in direct daily contact with our customers. We must also have a customer service team ready to resolve irregularities and disputes effectively and promptly. Effective customer service requires significant personnel expense and investment in developing programs and technology infrastructure to help customer service representatives carry out their functions. Failure to properly manage or train our customer service representatives could compromise our ability to handle customer complaints effectively. If we do not handle customer complaints effectively, our reputation and our business may suffer, and we may lose our customers’ confidence.

 

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Media coverage and publicity generally exert significant influence over consumers’ behavior and actions. If we are subject to negative publicity which causes our customers to change their purchasing habits, we may be materially adversely affected. New technologies, such as social media, are increasingly used to advertise products and services. The use of social media requires specific attention, as well as a set of monitoring and managing guidelines which we may be unable to effectively develop and implement. Negative posts or comments about us, our products, our business, our operations, our raw materials, our directors or executive officers on any social networking or other website could materially damage our reputation. In addition, our employees and representatives may use social media tools and mobile technologies inappropriately, which may give rise to liability, or which could lead to the exposure of sensitive information. Negative publicity which significantly harms the reputation of one or more of our brands may have a material detrimental effect on the value of our brands, which may materially adversely impact our sales, our business, our financial condition and our operating results.

 

Our industry is highly competitive and strategic actions by our competitors may weaken our competitive position and negatively affect our profitability.

 

We and other retailers, compete for capital, customers, employees, products, services and other important aspects of our business. In most of the business segments in which we operate, we generally compete with a number of large multinational and Brazilian retailers, as well as with local small businesses.

 

These competitors, some of which have a greater market presence in certain geographical areas, store formats and/or for certain categories of products, include traditional retailers, e-commerce and catalog sales businesses, direct sales companies and other forms of retail commerce. Changes in pricing and other terms negotiated, contractual conditions or practices of these competitors may materially adversely affect us.

 

In addition, increased competition may result in reduced gross margins, a decline in our working capital position and loss of market share, any of which could materially adversely affect us. Moreover, our competitors may be able to devote greater resources than us to invest in business development. Our competitors may be acquired by, receive investments from, or enter into other commercial relationships with larger, well-established and well-financed companies in certain lines of business. Also, the launches of new stores near ours, either by our current competitors or by new competitors, may impact the profitability of each of our stores, which may reduce our cash flows and operating profits. We may be materially adversely affected to the extent we are unable to compete successfully with our competitors.

 

The purchasing decisions of consumers are affected by factors including brand recognition, product quality and performance, availability of credit, price and subjective preferences. Some of our competitors may have marketing investments substantially larger than ours. If our advertising, promotional and marketing strategies do not succeed and if we are unable to offer new products to meet the market demands, we may be adversely affected. If we cannot introduce new products in a timely manner or if our end consumers believe that our competitors’ products are more attractive, our sales, profitability and our results of operations may be adversely affected.

 

Also, consumers are increasingly embracing online shopping and mobile commerce applications. As a result, a greater portion of total consumer expenditures with retailers could occur online and through mobile commerce applications. If we fail to maintain or grow our overall market position through the integration of our physical retail presence, our direct selling business and e-commerce platform, our net sales and financial performance could be adversely affected. In addition, a greater concentration of retail and wholesale sales in online and mobile commerce sales could result in a reduction in the amount of traffic we have in our physical stores. Conditions in the online sales market could also change rapidly and significantly as a result of technological advances. New start-up companies that innovate and large competitors that are making significant investments in e-commerce may create similar or superior e-commerce platforms and technologies that will be disruptive to our e-commerce, direct selling business and the operations of our physical stores.

 

Changes in consumer preferences may adversely affect our business, financial condition and operating results.

 

We operate in an industry that is subject to rapid and unpredictable changes in consumer demand and trends. Changes in consumer preferences and a potential decrease in demand may adversely affect our operations and growth perspectives. The success of our brand management strategy depends on our ability to foresee, evaluate and react effectively to changes in the spending levels of consumers and their preferences regarding beauty and other products. Our competitiveness depends in part on the successful creation of new products, as well as on consumer

 

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satisfaction and preferences in line with market trends. Consumer preferences and trends may change due to a variety of factors, such as changes in demographic trends, changes in the characteristics and ingredients of products, new market trends, climate, negative publicity from lawsuits against us or our peers, or a weak economy in one or more of the markets in which we operate. In addition, consumers may switch to the products of competitors, or the demand for products in our segment as a whole could decline. If we are unable to anticipate changes in consumer preferences and trends, our business, financial condition and operating results could be materially adversely affected.

 

If we fail to constantly update our product portfolio, we may be unable to maintain and expand our network of independent beauty consultants.

 

One critical element of our strategy is our capacity to maintain close relations with independent beauty consultants. One of the ways in which we maintain these relations is by constantly updating our portfolio of innovative and attractive products. Our ability to constantly evolve our portfolio depends on a variety of factors, including our capacity to foresee market requirements and use new raw materials and technologies effectively. If we are unable to constantly update our product portfolio, our ability to maintain and expand our network of independent beauty consultants could be materially adversely affected.

 

Interruption of our research and development, production and distribution units may materially adversely affect our business, financial condition and results of operations.

 

We develop and manufacture a significant portion of our products at our own manufacturing plants. We are exposed to certain risks inherent to our research, production, distribution and development activities, including industrial accidents, environmental actions, strikes and other labor disputes, interruptions in logistics, power supply or information systems, total or partial loss of operating units, product quality control, safety, specific license requirements and other regulatory factors, as well as natural disasters and other external factors over which we have no control. For example, we use flammable and explosive substances, such as alcohol, in manufacturing our products. These flammable or explosive products are stored in our operational units and could damage our installations. Accidents at our operational units, especially our main industrial plant in Cajamar, in the state of São Paulo, could expose us to risks related to the total or partial loss of our facilities, depending on the severity of such accidents.

 

Additionally, we use third-party manufacturers to manufacture certain of our products. Therefore, as a company engaged in manufacturing, distribution and research and development on a global scale, we are subject to the risks inherent in such activities carried out by our third-party manufacturers. Such risks to us and to our third-party manufacturers include industrial accidents, environmental events, fires, strikes and other labor or industrial disputes, disruptions in logistics or information systems (such as the ERP system), loss or impairment of key manufacturing or distribution sites, product quality control issues, safety concerns, licensing requirements and other regulatory or government issues, as well as natural disasters, pandemics, border disputes, acts of terrorism and other external factors over which we have no control. In addition, there can be no guarantee that all of our third-party manufacturers will fulfill their obligations under the service agreements into which we enter with them. If any of our third-party manufacturers encounters any situation affecting their output, or if any of our third-party manufacturers fails to the meet their contracted obligations, this could affect our ability to deliver our products to market, which could have a material adverse effect on our business, prospects, financial condition, liquidity, results of operations and cash flows.

 

These risks may be exacerbated by our efforts to increase facility consolidation covering our manufacturing, distribution and supply footprints, particularly if we are unable to successfully increase our resiliency to potential operational disruptions or enhance our disaster recovery planning. The loss of, or damage to, any of our facilities or centers, or those of our third-party manufacturers, could have a material adverse effect on our business, prospects, financial condition, liquidity, results of operations and cash flows.

 

Our success depends, in part, on the quality, safety and efficacy of our products.

 

Our success depends, in part, on the quality, safety and efficacy of our products. If our products are found to be, or perceived to be, defective or unsafe, or if they otherwise fail to meet our independent beauty consultants’ or end customers’ standards, our relationship with our independent beauty consultants or end customers could suffer, we could need to recall some of our products and/or become subject to regulatory action, our reputation or the appeal of

 

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our brand could be diminished, we could lose market share, and we could become subject to liability claims, any of which could result in a material adverse effect on our business, prospects, financial condition, liquidity, results of operations and cash flows.

 

We may face difficulties in opening new stores and developing our existing stores.

 

Our growth is closely tied to our ability to open new stores and develop existing stores and to identify and successfully take advantage of new business opportunities. Our ability to open new stores and develop existing stores successfully depends on several factors. These factors include, among others, the availability of financial resources or of financing at acceptable terms as well as our ability to identify appropriate locations for new stores, which involves the collection and analysis of demographic and market data to determine whether there is sufficient demand for our products in the relevant locations, as well as the acquisition of real estate property or the negotiation of lease agreements on acceptable terms. In addition, if consumers in the markets into which we expand or in which we build stores of a new format are not receptive to our retail concepts or are otherwise not receptive to our presence in such markets, we may be materially adversely affected. We may also be subject to delays resulting from changes in legislation, governmental bureaucracy or unforeseen or force majeure events, which could result in increased and unexpected costs that are not included in our budgets. Any interruption or delays in the construction or launch of our projects, or increase in costs, could disrupt our business, decrease our anticipated revenues in our business plan, and adversely affect us.

 

Our organic growth, as well as growth arising from acquisitions, could place a significant strain on our managerial, operational and financial resources. Our ability to manage our future growth will depend on our ability to continue to implement and improve operational, financial and management information systems on a timely basis and to train, motivate and manage an enlarged workforce, including our ability to recruit qualified personnel with the necessary technical skills and experience and the integration of our existing workforce with that of any businesses that we may acquire. Failure to effectively manage our expansion may lead to increased costs, a decline in sales and reduced profitability.

 

Our business depends on a stable and adequate supply of raw materials, which may be subject to shortages in supply or delays in delivery.

 

We manufacture and package the majority of our Natura branded products. Raw materials, consisting chiefly of essential oils, chemicals, containers and packaging components, are purchased from various third-party suppliers for our products. Additionally, we produce the brochures that are used by independent beauty consultants to sell Natura-branded products. The loss of multiple suppliers or a significant disruption or interruption in the supply chain could have a material adverse effect on the manufacturing and packaging of our products, or the production of our brochures. This risk may be exacerbated by our globally-coordinated purchasing strategy, which leverages volumes. Regulatory action, such as restrictions on importation, may also disrupt or interrupt our supply chain. Furthermore, increases in the costs of raw materials or other commodities may adversely affect our profit margins if we are unable to pass along any higher costs in the form of price increases or otherwise achieve cost efficiencies in manufacturing and distribution. In addition, if our suppliers fail to use ethical business practices and comply with applicable laws and regulations, such as any child labor laws, our reputation could be harmed due to negative publicity.

 

If we experience any material shortages or delay in delivery of packaging materials, our ability to package and deliver our finished goods to our points of sale may be materially adversely affected, and our reputation and sales may suffer material damage, which would adversely affect our results of operation.

 

The risk of product contamination resulting in product liability may materially adversely affect our business.

 

As is the case with other consumer product manufacturers, we may be subject to product liability claims if our products are found to be unfit for human use or cause illness. Products may be rendered unfit for human use due to contamination of ingredients, whether accidental or not, and illegal tampering. Despite the measures we have in place to control the quality of our products, contamination of ingredients of our products may occur during the transportation, production, distribution and sales processes due to reasons unknown to us or out of our control. The occurrence of such problems may result in product recalls which will cause serious damage to our reputation and brand, as well as loss of revenue. We cannot assure you that such incidents will not occur in the future. In addition, adverse publicity about these types of concerns relating to our brand or to the industry as a whole, whether or not

 

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legitimate, may discourage consumers from purchasing our products. If consumers lose confidence in our brand, we could experience long term declines in our sales, resulting in losses which we may not be able to recover.

 

Interruption in our main information technology, or IT, systems could adversely affect our business, financial conditions and operating results.

 

We use IT systems to support our business. Our IT systems and infrastructure, as well as those of third parties, are integral to our performance. The IT systems we use include support systems for financial reports, web-based tools, and an internal communication and data transfer network. We also use a variety of technological tools (online ordering system, electronic billing and online training tools) to assist us and enable us to communicate with our independent beauty consultants. In the coming years, we plan to increase the use of IT tools to communicate with our independent beauty consultants. We use third-party service providers in many instances to provide these IT systems. Over the last several years, we have undertaken initiatives to increase our reliance on IT systems which has resulted in the outsourcing of certain services and functions, such as global human resources IT systems, call center support, Sales Representative support services and other IT processes. Any of our IT systems and infrastructure, or those of third-party service providers, is subject to failure or interruptions that are inherent in the complex scenario of localized applications and the system architecture. Incidents originating from legacy or non-integrated systems, or both, as well as fires, floods, power failure, telecommunication failure, terrorist attacks, break-ins, data corruption and similar events may also occur. Other risks and challenges could arise as we upgrade, modernize and standardize our IT systems. Despite our network security measures, which include due diligence at service providers, our systems could also be vulnerable to computer viruses, data security failures, break-ins, data corruption and similar interruptions caused by unauthorized access to these systems. We rely on our employees, independent beauty consultants, and third parties in our day-to-day and ongoing operations, which may, as a result of human error or malfeasance or failure, disruption, cyberattack or other security breach of third-party systems or infrastructure, expose us to risk. Furthermore, our ability to protect and monitor the practices of our third-party service providers is more limited than our ability to protect and monitor our own IT systems and infrastructure. The occurrence of these and other incidents could damage our IT systems and infrastructure, or those of third-party service providers, and adversely affect our business, financial condition and operating results.

 

Our IT systems or those of our third-party service providers may be accessed by unauthorized users, such as cyber criminals, as a result of a failure, disruption, cyberattack or other security breach, exposing us to risk. As techniques used by cyber criminals change frequently, a failure, disruption, cyberattack or other security breach may go undetected for a long period of time. A failure, disruption, cyberattack or other security breach of our IT systems or infrastructure, or those of our third-party service providers, could result in the theft, transfer, unauthorized access to, disclosure, modification, misuse, loss, or destruction of Company, employee, independent beauty consultants, customer, vendor, or other third-party data, including sensitive or confidential data, personal information and intellectual property.

 

We are investing in industry standard solutions and protections and monitoring practices of our data and IT systems and infrastructure to reduce these risks and continue to monitor our IT systems and infrastructure on an ongoing basis for any current or potential threats. Such efforts and investments are costly, and as cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. As a company that operates globally, we could be impacted by commercial agreements between us and processing organizations, existing and proposed laws and regulations, and government policies and practices related to cybersecurity, privacy and data protection.

 

Despite our efforts, our and our third-party service providers’ data, IT systems and infrastructure may be vulnerable. There can be no assurance that our efforts will prevent a failure, disruption, cyberattack or other security breach of our or our third-party service providers’ IT systems or infrastructure, or that we will detect and appropriately respond if there is such a failure, disruption, cyberattack or other security breach. Any such failure, disruption, cyberattack or other security breach could adversely affect our business, including our ability to expand our business, cause damage to our reputation, result in increased costs to address internal data, security, and personnel issues, and result in violations of applicable privacy laws and other laws and external financial obligations such as governmental fines, penalties, or regulatory proceedings, remediation efforts, such as breach notification and identity theft monitoring, and third-party private litigation with potentially significant costs. In addition, it could result in deterioration in our employees’, independent beauty consultants, customers’, or vendors’ confidence in us, which could cause them to discontinue business with us or result in other competitive disadvantages.

 

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The loss of members of our senior management, the weakening of our corporate culture and/or our inability to attract, retain and train key personnel may adversely affect our business, financial condition and operating results.

 

We believe that our ability to retain our competitive advantage largely depends on our executive leaders and the corporate culture our management promotes. The loss of any member of our top management or our inability to attract and retain experienced managers could disrupt our operations and have an adverse effect on our business. If members of our senior management team resign, we may not be able to sustain our existing culture or replace them with individuals of the same experience and qualification. Key personnel may leave us for a variety of reasons and the impact of these departures is difficult to predict, which may hinder the implementation of our strategic plans and adversely affect us.

 

In addition, our future success also depends on our ability to identify, attract, hire, train, retain, motivate and manage other personnel with specific skills and knowledge. Competition for these personnel is intense, and we may not be able to successfully attract, hire, train, retain, motivate and manage sufficiently qualified personnel, which may adversely affect our business.

 

Our comparable store sales and quarterly financial performance may fluctuate for a variety of reasons, which could result materially adversely affect our financial performance.

 

Our comparable store sales and quarterly results of operation have fluctuated in the past, and we expect them to continue to fluctuate in the future. A variety of factors affect our comparable store sales and quarterly financial performance, including:

 

·seasonality;

 

·changes in our merchandising strategy or mix;

 

·the effectiveness of our inventory management;

 

·timing and concentration of new store openings, including additional human resource

 

·requirements and related pre-opening and other start-up costs;

 

·cannibalization of existing store sales by new store openings;

 

·levels of pre-opening expenses associated with new stores;

 

·timing and effectiveness of our marketing activities, such as new products, direct marketing

 

·activity, television and magazine advertisements;

 

·actions by our existing or new competitors;

 

·general economic conditions and, in particular, the retail sales environment; and

 

·store employees’ motivation and effectiveness.

 

Accordingly, our results for any one financial quarter are not necessarily indicative of the results to be expected for any other quarter, and comparable store sales for any particular future period may decrease. In that event, our result of operations may fluctuate significantly.

 

Our inability to attract and retain our independent beauty consultants may materially adversely affect our business, financial condition and operating results.

 

The inability to attract and retain our independent beauty consultants could materially adversely affect our business, financial condition and operating results. We conduct our business in the countries in which we operate mainly in the form of direct sales through a network of independent beauty consultants, who sell our Natura-branded products, and independent sales advisors (Natura business leader sales consultants), who, in addition to selling our

 

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products, are also responsible for sharing business information and guidelines to small groups of Natura consultants. These independent beauty consultants are our main sales channel for our Natura-branded products and our business expansion is linked to the growth of the resellers network.

 

Natura consultants and Natura business leader sales consultants are independent beauty consultants who buy products directly from us and sell them to their clients. There is no exclusivity agreement between us and our independent beauty consultants, nor do we require a minimum period of association with us. As of December 31, 2018, we had approximately 1.1 million Natura consultants in Brazil and 645,000 outside Brazil. There is a high rate of turnover among consultants and business leader sales consultants, which is a common characteristic of the direct-selling business. Our success in attracting and retaining independent beauty consultants depends on a series of factors, which include:

 

·maintaining close and quality relationships with our independent beauty consultants;

 

·continuing to create innovative and successful products, which is important to secure the interest of independent beauty consultants in our company and the Natura brand;

 

·maintaining the average prices of products that enable our independent beauty consultants to increase their profits;

 

·public perception of our Natura brand, the line of products and the direct sales channel;

 

·competitiveness among independent beauty consultants of other direct sales companies;

 

·the level of service provided to independent beauty consultants;

 

·macroeconomic conditions in Brazil and other countries in which we operate;

 

·our ability to successfully execute our digital strategy;

 

·our ability to successfully implement other initiatives in the direct-selling channel;

 

·our ability to improve our brochure and product offerings;

 

·the legal, administrative and other conditions imposed on independent beauty consultants by the authorities of the countries in which we operate; and

 

·our ability to improve our marketing and advertising.

 

We cannot guarantee that our suppliers do not engage in irregular practices.

 

Given the decentralization and outsourcing of our suppliers’ production chains, we cannot guarantee that suppliers will not have issues regarding working conditions, sustainability, outsourcing of the production chain and improper safety conditions, or that they will not use these irregular practices in order to lower product costs. If a significant number of our suppliers engage in these practices, our reputation may be harmed and, as a consequence, our customers’ perception of our products may be materially adversely affected, causing thereby a reduction in net operating revenues and results of operations and the market prices of our notes.

 

Changes in the legal status of independent beauty consultants and business leader sales consultants could adversely affect our operating results.

 

The independent beauty consultants and business leader sales consultants who work with us are not our employees. However, the Brazilian government could enact laws or regulations, or interpret existing laws or regulations in such a way that could characterize independent beauty consultants and advisors as employees or otherwise oblige us to make social security contributions on their behalf. Any changes in law or unfavorable court decisions that find the existence of employment relationship or result in our obligation to make social security contributions or other labor charges for our independent beauty consultants and business leader sales consultants would result in substantial additional costs that could result in a need for us to restructure our business and materially adversely affect our financial condition and operating results. Similar changes in other countries in which

 

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we operate could also cause adverse impacts on our strategy and results. For further information on the legal status of our independent beauty consultants, please see “Information about Natura &Co—Legal status of our independent beauty consultants and business leader sales consultants.”

 

We may be liable for the labor and pension obligations of third-party suppliers.

 

Pursuant to Brazilian labor laws, if third-party service providers that provide services to us do not comply with their obligations under labor and social security-related laws, we may be held jointly liable for any such noncompliance, resulting in fines and other penalties that may materially adversely affect us. We may also be held liable for bodily injury or death within our premises of employees of third parties providing services to us, which may adversely affect our reputation and our business.

 

We could incur losses and expend significant time and money defending lawsuits and arbitration proceedings. Unfavorable outcomes in litigation or our inability to post judicial collateral or provide guarantees in pending legal or administrative proceedings could have a material adverse effect on our business, financial condition and results of operations.

 

We may, in the future, become party to litigation, including, for example, new tax assessments, claims alleging violation of the federal securities laws or claims relating to employee or employment matters, our products or advertising. Currently, we are party to several civil, administrative, environmental, labor, tax and arbitration proceedings. These claims involve substantial amounts under dispute and could also result in other punitive measures. Several individual disputes account for a significant portion of the total claims against us.

 

We cannot guarantee that such proceedings will have favorable outcomes for us or that the provisions made will be sufficient to pay any amounts due. Any proceedings that require us to make substantial payments, affect our reputation or otherwise interfere with our business operations could have a material adverse effect on our business, financial condition and operating results. In case of unfavorable decisions against us in claims involving substantial amounts, or if the actual losses are significantly higher than the provisions we have recorded in our financial statements, our financial condition and operating results could be adversely affected. Moreover, our management may be forced to dedicate its time and attention to defend against these claims, which could prevent it from concentrating on our core business. Depending on the result, certain lawsuits could result in restrictions to our operations and adversely affect our business, financial condition and operating results.

 

Additionally, we may not have sufficient funds to post collateral or provide guarantees in judicial or administrative proceedings that claim substantial amounts. Even if we do not post such collateral or provide guarantees, we will be liable for paying any amounts due pursuant to any unfavorable outcomes in legal proceedings, and may have an adverse outcome on the business, financial condition and operational results of the Company. We cannot assure you that, if we cannot make such payments, our assets, including financial assets, will not be attached, or that we will be able to obtain tax good standing certificates, all of which may have a material adverse effect on our business, financial condition and results of operations.

 

The cosmetics, fragrances and toiletries segment is susceptible to periodic slowdowns as a result of decreases in consumer purchasing power, economic downturns and unfavorable economic cycles.

 

Historically, the cosmetics, fragrances and toiletries segment has been susceptible to periods of general economic slowdown that have led to a decline in consumer spending. Adverse economic conditions may significantly reduce the spending capacity of consumers and their disposable income, which could materially adversely affect our sales, operating results and financial condition.

 

The success of operations in most of the business segments where we operate depends on various factors related to consumer expenditures and consumers’ income, including general business conditions, interest rates, inflation, consumer credit availability, taxation, consumer confidence in future economic conditions and employment and salary levels.

 

Our results of operations and financial condition have been, and will continue to be, affected by the growth rate of the gross domestic product, or GDP, of the countries in which we operate. We cannot ensure that the GDP of the countries in which we operate will increase or remain stable. Developments in the macroeconomic conditions of the countries in which we operate, including Brazil which has been experiencing an economic slowdown since 2012,

 

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may affect such countries’ growth rates and, consequently, us. Any decrease or slowdown in such growth may materially adversely affect our sales and our results of operations.

 

We may face challenges in developing our omnichannel strategy and expanding our operations to e- commerce.

 

The coordinated operation of our network of physical stores and e-commerce platforms across multiple brands is fundamental to the success of our omnichannel strategy. If we are unable to align and integrate the strategies of our multiple sales channels, or if our respective sales channels compete against each other, we may be unable to fully benefit from the advantages that an omnichannel, dual-model and multiformat strategy offers, which may materially adversely affect us.

 

Also, consumers are increasingly embracing online shopping and mobile commerce applications. As a result, a greater portion of total consumer expenditures with retailers and wholesalers could occur online and through mobile commerce applications. If we fail to maintain or grow our overall market position through the integration of our physical retail presence and e-commerce platform across our brands, our net sales and financial performance could be adversely affected. In addition, a greater concentration of retail and wholesale sales in online and mobile commerce sales could result in a reduction in the amount of traffic we have in our physical stores.

 

Conditions in the online sales market could also change rapidly and significantly as a result of technological advances. New start-up companies that innovate and large competitors that are making significant investments in e-commerce may create similar or superior e-commerce platforms and technologies that will be disruptive both to our e-commerce and the operations of our physical stores.

 

The Natura, The Body Shop and Aesop brands have historically used e-commerce to different degrees and may continue to have different strategies for their e-commerce platforms. As we continue expanding our e-commerce operations across our brands, we will continue to face risks associated with online businesses. In addition, we may pursue strategies within e-commerce that our brands have not utilized before, and we may expand into e-commerce in countries and jurisdictions in which we have less experience and in which our brands may be less well-known by customers. We may be unable to attract a sufficient number of customers and other participants, fail to anticipate competitive conditions or face difficulties in operating effectively across all of our channels and business formats, and could also be the target of illegal and fraudulent uses of our e-commerce platforms. Accordingly, any efforts to expand our e-commerce operations may not be successful, which could limit our ability to grow our revenue, net income and profitability, adversely affecting our results of operations. See “Information about Natura &Co—Our Distribution Processes.”

 

Restrictions on credit availability to consumers in Brazil may adversely affect our sales volumes.

 

Sales in installments are an important component of the result of operations of retail companies in Brazil. The increase in the unemployment rate, combined with high interest rates, may result in increased restrictions on the availability of credit to consumers in Brazil. As of December 31, 2018, the unemployment rate in Brazil was 12.3%, according to the IBGE. Our sales volumes and, consequently, our result of operations may be adversely affected if credit availability to consumers decreases, or if policies are introduced by the Brazilian government that further restrict the granting of credit to consumers.

 

The Brazilian federal government, through the National Monetary Council (Conselho Monetário Nacional) and the Brazilian Central Bank, periodically introduce regulations designed to regulate the availability of credit in order to reduce or increase consumption and, consequently, to control the rate of inflation. These regulations include, among other tools, (1) modifying the requirements imposed on compulsory deposits on loans, deposits and other transactions; (2) regulating the maximum term of financings; and (3) imposing limitations on the amount of financing that may be obtained. These regulations may reduce our customers’ ability to obtain credit from financial institutions, and some of these can affect the financial and credit market for extended periods of time. We cannot assure you that in the future the Brazilian federal government will not adopt new regulations that reduce the access of our customers to credit from financial institutions.

 

In addition to providing for sales in installments, we may also extend other forms of credit to customers. Any form of lending carries a risk that our customers may not repay the credit we extend to them. An increase in the unemployment rate, an increase in interest rates, or any economic downturn may further reduce the likelihood of

 

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repayment by our customers, which could require us to suffer losses and raise the rates we charge. Any increase in interest rates by us may decrease the likelihood that customers will be able to take on debt to purchase our products.

 

Reductions in credit availability and more stringent credit policies by us and credit card companies (as well as increased interest rates) may negatively affect our sales. Unfavorable economic conditions in Brazil, or unfavorable economic conditions globally that impact the Brazilian economy, may significantly reduce available income and consumer expenditure, particularly in the lower income classes, who have relatively less credit access than higher income classes, more limited debt refinancing conditions and are more susceptible to increases in the unemployment rate. These conditions may cause a material adverse effect on our sales, our business and our results of operations.

 

Our dependence on credit card companies for sales and consumer financing is a growing trend.

 

Our business is relatively dependent on credit cards as it is one of the preferred payment methods of our customers. In order to execute credit card sales, we are dependent on the policies of credit card companies, and are affected by the fees that such companies charge us. Any change in the policies of the credit card issuers, including, for example, the administration fee charged to merchants, could materially adversely affect our business and results of operations.

 

Our franchise business models present a number of risks.

 

Our success increasingly relies on the financial success and cooperation of franchisees across the Natura, The Body Shop and Aesop brands, yet we have limited influence over their operations. Our margins from physical retail stores arise from two primary sources: fees from franchised stores (e.g., rent and royalties based on a percentage of sales, as well as the revenues from products we sell to our franchisees) and, to a lesser degree, sales from company-operated stores. Our franchisees manage their businesses independently, and therefore are responsible for the day-to-day operation of their stores. The revenues we realize from franchised stores are largely dependent on the ability of our franchisees to grow their sales. If our franchisees do not experience sales growth, our revenues and margins could be negatively affected as a result. Also, if sales trends worsen for franchisees, their financial results may deteriorate, which could result in, among other things, store closures or delayed or reduced payments to us. Our refranchising effort will increase that dependence and the effect of those factors.

 

Our success also increasingly depends on the willingness and ability of independent franchisees to implement major initiatives, which may include financial investment, and to remain aligned with us on operating, promotional and capital-intensive reinvestment plans. Franchisees’ ability to contribute to the achievement of our plans is dependent in large part on the availability to them of funding at reasonable interest rates and may be negatively impacted by the financial markets in general or by the creditworthiness of our franchisees or the Company. Our operating performance could also be negatively affected if our franchisees experience operational problems or project an image inconsistent with our brand and values, particularly if our contractual and other rights and remedies are limited, costly to exercise or subjected to litigation. If franchisees do not successfully operate stores in a manner consistent with our required standards, the image and reputation of our brands could be harmed, which in turn could materially adversely affect our business and operating results.

 

Our business depends on a supply chain and consequently we face inherent logistics-related risks.

 

If operations at our distribution centers are adversely affected by factors beyond our control, such as fire, natural disasters, power shortages, failures in the systems, among others, and in the event that no other distribution center is able to meet the demand of the region affected, the distribution of products to the regions supplied by the affected distribution center will be impaired, which may adversely affect us. Our operations may be materially adversely affected if we are not able to open new distribution centers or expand our existing distribution centers in order to meet the supply needs of our clients.

 

Additionally, any significant interruptions, failures or changes in the logistics infrastructure we or our suppliers use to deliver products in our distribution centers could prevent the timely or successful delivery of the products to our clients and adversely affect our operations.

 

Our distribution network is sensitive to fluctuation in oil prices, and any increases in the price, disruption of supply or shortage of fuel may result in increased shipping costs and adversely affect our business and results of operation.

 

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Furthermore, if stringent regulations to combat street traffic are enacted imposing further restrictions on the delivery of products to our clients within certain hours of the day in certain municipalities where we operate, our ability to distribute products in a timely manner to our clients may be affected. A general increase in street traffic can also impact our ability to distribute products to our clients in a timely manner. Also, our e-commerce business is subject to similar risks, and as we expand our e-commerce platform these risks may affect our ability to deliver products to our end-consumers in a timely manner. Any inability to promptly and successfully deliver the products we sell to our customers through our e-commerce platform may result in the loss of their business and materially adversely affect our reputation, which may have an adverse impact on our sales.

 

We are not insured against all risks affecting our activities and our insurance coverage may not be sufficient to cover all losses and/or liabilities that may be incurred by our operations.

 

We cannot provide assurance that our insurance coverage will always be available or will always be sufficient to cover any damages resulting from any kind of claims. In addition, there are certain types of risks that may not be covered by our policies, such as war, force majeure or certain business interruptions. In addition, we cannot provide assurance that when our current insurance policies expire, we will be able to renew them at sufficient and favorable terms. Claims that are not covered by our policies or the failure to renew our insurance policies may materially adversely affect us.

 

Changes in the availability and costs of energy and other utilities could materially adversely affect us.

 

Our operations consume material quantities of energy and other utilities. Energy and utility prices have been subject to significant price volatility in the recent past in Brazil, including as a result of climate conditions, and may be again in the future. For instance, high energy prices over an extended period of time, as well as changes in energy taxation and regulation in certain geographies, may result in a material adverse effect on our operating revenues and could materially adversely affect our profitability. There is no guarantee that we will be able to pass along increased energy and public utility costs to our customers.

 

We may not be able to execute our strategy of sourcing a sufficient volume and variety of products at competitive prices or adequately managing our supply of inventory, which could have a material adverse effect on us.

 

Our business is dependent on our ability to strategically source a sufficient volume and variety of products at competitive prices. In addition, we may significantly overstock low-acceptance products and be forced to take significant markdowns. We cannot assure you that we will continue to identify the appropriate customer demand and take advantage of appropriate buying opportunities, which could have a material adverse on our business and financial results. In addition, overstocked goods in our distribution centers may become obsolete or their validity may expire during the time it takes to be delivered to our clients. In addition, the improper handling of products may result in their breakage or malfunctioning.

 

Further, if we or any third party warehousing provider engaged by us fail to store our inventory at optimal conditions, such as at optimal temperatures and humidity levels, the quality and shelf life of our products may be adversely affected, and we may as a result suffer damage to our reputation, which may adversely affect our results of operation.

 

A work stoppage or significant strike from our labor force may affect our operations.

 

A number of our employees are represented by labor unions and covered by collective bargaining or similar labor agreements, which are subject to periodic renegotiation within the time frames established by law. Strikes and other work stoppages or other labor disruptions in any of our facilities or labor unrest disrupting any of our third-party suppliers of goods or services may have a material adverse effect on our business and results of operations.

 

We may not be able to protect our intellectual property rights.

 

Our future success depends significantly on our ability to protect our current and future brands (including our private labels) and to defend our intellectual property rights, including trademarks, domain names, trade secrets and know-how. There is also a risk that we could, by omission, fail to renew a trademark in a timely manner or that our competitors will challenge, invalidate or circumvent any existing or future trademarks issued to, or licensed by, us. We cannot be certain that the steps we have taken to protect our portfolio of intellectual property rights will be

 

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sufficient or that third parties will not infringe upon or misappropriate proprietary rights. If we are unable to protect our proprietary rights against infringement or misappropriation, it could have a material adverse effect on us, and in particular, on our ability to develop our business.

 

Counterfeiting and imitation have occurred in the past for many consumer products, including cosmetics. As our Natura, The Body Shop, Aesop among others, brands are well-known brands around the world, we have in the past experienced counterfeiting and imitation of our products. We are unable to guarantee that counterfeiting and imitation will not occur or, if it does occur, that we would be able to detect and address the problem effectively. Any occurrence of counterfeiting or imitation could impact negatively upon our reputation and brand name, lead to loss of consumer confidence in our brand, and, as a consequence, adversely affect our results of operation.

 

The laws of some foreign countries do not protect our proprietary rights as fully as do the laws of Brazil, the United States, or the European Union member States. As a result, we may not be able to protect our intellectual property rights adequately by legal means in some of the jurisdictions where we do business. Litigation may be necessary in the future to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. The costs required to protect our trademarks, trade names and patents, including legal fees and expenses, could be substantial.

 

Litigation may also be necessary to defend against claims of infringement or invalidity by others as we actively pursue innovation in the cosmetics and toiletries industry and enhance the value of our intellectual property portfolio. An adverse outcome in litigation or any similar proceedings could adversely affect our business, financial condition and results of operation. In addition, the diversion of management’s attention and resources while addressing any intellectual property litigation claim, regardless of whether the claim is valid, could be significant and could significantly affect our business, financial condition and results of operation.

 

Please see the section headed “Business—Intellectual Property” for further information relating to our intellectual property.

 

Unauthorized disclosure of sensitive or confidential customer information or our failure or the perception by our customers that we failed to comply with privacy laws or properly address privacy concerns could materially harm our business and standing with our customers.

 

We collect, store, process, and use certain personal information and other customer data in our business. A significant risk associated with our business and communications in general is the secure transmission of confidential information over public networks. The perception of privacy concerns, whether or not valid, may adversely affect us. We must ensure that any processing, collection, use, storage, dissemination, transfer and disposal of data for which we are responsible comply with relevant data protection and privacy laws. The protection of our customer, employee and company data is critical to us. Currently, a number of our customers authorize us to bill their credit card accounts directly. We rely on commercially available systems, software, tools and monitoring to provide secure processing, transmission and storage of confidential customer information, such as credit card and other personal information.

 

Our facilities and systems, either of our e-commerce platform or our physical stores, as well as those of our third-party service providers, may be vulnerable to security breaches, fraud, acts of vandalism, computer viruses, misplaced or lost data, programming or human errors, or other similar events. Any security breach, or any perceived failure involving the misappropriation, loss or other unauthorized disclosure of confidential information, as well as any failure or perceived failure to comply with laws, policies, legal obligations or industry standards regarding data privacy and protection, whether by us or vendors in our online marketplace platform, could damage our reputation, expose us to litigation risk and liability, subject us to negative publicity, disrupt our operations and harm our business. We cannot provide assurance that our security measures will prevent security breaches or that failure to prevent them will not have a material adverse effect on us.

 

The interests of our controlling shareholders may conflict with the interests of our other shareholders.

 

Our controlling shareholders, have the power to, among other things, appoint the majority of the members of our board of directors and determine the outcome of certain resolutions requiring approval from shareholders, including with regards to matters pertaining to related party transactions, corporate restructurings, disposal of assets, partnerships, and the timing, conditions and amounts of any future dividend payments (subject to any minimum

 

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level of dividend payments required to our by-laws which require us to distribute at a minimum 30% of our profits as dividends or interest on equity each fiscal year). Our controlling shareholders may be interested in carrying out acquisitions, disposal of assets or partnerships, seek financing or enter into similar transactions that may conflict with the interests of our other shareholders. For further information on our controlling shareholders, please see “Major Shareholders and Related Party Transactions.”

 

Changes in environmental laws and regulations can adversely affect our business, including our capacity to develop new products.

 

Our operations are subject to strict environmental laws at the national, sub-national and municipal levels, including regulations related to water consumption, solid waste, biodiversity protection and gas emissions, among others. In addition, we require permits and licenses to carry out certain of our activities. If we fail to comply with these laws and regulations or obtain the required permits and licenses, we could be subject to fines and other sanctions including the cancellation of our permits and licenses and we and our executive officers and directors could be subject to criminal sanctions. Certain environmental licenses and permits that we require to carry out some of our activities are in the process of being obtained or renewed, and we cannot assure you that we will be able to obtain or renew such licenses. We may have to incur in expenses related to remedial environmental measures or suspend certain of our operations until remedial measures are taken. Government agencies or other authorities may also enact new rules and regulations that are more restrictive or may interpret existing laws and regulations more restrictively, which could result in additional expenses related to compliance with environmental laws and regulations, which in turn, could adversely affect our business, financial condition and results of operations.

 

In particular, Brazilian environmental rules and regulations could become more restrictive in areas related to our activities, including with regard to climate change (greenhouse gas emission standards), solid waste (targets for return of packaging to the Company and its recycling after use by consumers) and water resources (payments by companies in Brazil for use of water), among other issues. In December 2009, the Brazilian Congress approved the National Policy on Climate Change (Política Nacional sobre Mudança do Clima), or the PNMC, which sets forth objectives based on the commitments voluntarily undertaken by Brazil at the UN Framework Convention on Climate Change, the Kyoto Protocol and other international norms on climate change. The PNMC could result the implementation of new technologies and/or industrial conditions that restrict our production and selling activities and increase or costs. Brazil’s National Policy on Solid Waste, enacted in 2010, includes an obligation to return product packaging to improve recycling. This policy could introduce additional environmental obligations on manufacturers related to the collection of such materials.

 

Our innovation strategy is mainly based on using the biodiversity of the Pan-Amazon region. This critical element of our strategy could be impaired if new laws or regulations, or even different interpretations of existing laws, further restrict the use of Brazil’s natural resources or the associated traditional knowledge and we increase our research and development costs. The biodiversity protection rules set forth in the UN Convention on Biological Diversity, in the Nagoya Protocol on Access to Genetic Resources and the Fair and Equitable Sharing of Benefits Arising from their Utilization and in applicable laws represents additional costs and challenges to our research and development initiatives. In the future, these rules could become stricter, increasing our innovation and product launch costs. These changes could adversely affect our business, financial condition and results of operations, as well as our image as a company that creates, among others, products developed from the resources in Brazil’s ecosystem.

 

We may not have access to new financing on favorable conditions to meet our capital needs and fulfill our financial obligations.

 

We rely on obtaining financing and refinancing of existing indebtedness in order to operate our business, implement our strategy and grow our business. We need bank guarantees to obtain credit facilities from financial institutions, and we typically need insurance guarantees in order in connection with court proceedings to which we are a party. Recent disruptions in the global credit markets and their effect on the global and Brazilian economies could materially adversely affect our ability to raise capital and materially and adversely affect our business.

 

Substantial volatility in the global capital markets, unavailability of financing in the global capital markets at reasonable rates and credit market disruptions have had a significant negative impact on financial markets, as well as on the global and domestic economies. In particular, the cost of financing in the global debt markets has increased substantially, greatly restricting the availability of funds in such markets. Further, volatility in the markets has led to

 

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increased costs for obtaining financing in the credit markets, as many creditors have raised interest rates, adopted more rigorous loan policies, reduced volume and, in some cases, ceased offering financing on standard market terms. If we are unable to obtain new financing or to refinance existing loans when necessary, or obtain or renew insurance guarantees on reasonable terms or at all, we may face difficulties in complying with our financial obligations or explore business opportunities. This possible scenario would have a material adverse effect on our business, financial condition and results of operations.

 

We may be unable to comply with restrictive covenants under our financing agreements.

 

We are subject to certain restrictive covenants relating to leverage levels in certain of our financing agreements (including our debentures), as well as the maintenance of bank guarantees in respect of our obligations under such agreements, with the failure to maintain any such bank guarantees constituting an event of default. Therefore, any failure by us to comply with the restrictive covenants in our credit agreements as a result of adverse conditions in our business environment, or put in place bank guarantees for certain agreements, may trigger the acceleration of part of our indebtedness, limit our access to new credit facilities on which we depend to implement our investment plan as well as materially adversely affect our business and results of operations.

 

We may not be able to successfully integrate the operations of The Body Shop and face other risks associated with the acquisition.

 

We acquired The Body Shop in September 2017. We may not be able to successfully integrate The Body Shop into our business, or successfully implement appropriate operational, financial and administrative systems and controls to achieve the benefits that we expect to result from the acquisition of The Body Shop. Risks we face include: (1) failure of The Body Shop to achieve expected results; and (2) possible inability to achieve expected synergies and/or economies of scale.

 

In addition, the acquisition of The Body Shop may expose us to successor liability relating to prior actions of The Body Shop and its management or contingent liabilities incurred prior to our involvement, and will expose us to liabilities associated with ongoing operations, in particular to the extent we are unable to adequately and safely manage such acquired operations. A material liability associated with The Body Shop’s operations could adversely affect our reputation and have a material adverse effect on us. Also, undisclosed liabilities from the acquisition of The Body Shop may harm our financial condition and operating results.

 

We depend on third parties to manufacture our products.

 

We have entered into agreements with third-party contractors to manufacture the products which we sell. The loss or expiration of these agreements with third-party contractors or our inability to renew these agreements or to negotiate new agreements with other providers at equivalent rates could adversely affect our business and financial performance. Contractors’ negligence could compromise the quality and safety of our products and expose us to the risk of liability for product liability and environmental damage caused by such third parties. We expect that we will be dependent on such agreements for the foreseeable future. For more information about our third-party manufacturing agreements, see “Information About Natura &Co—Material Agreements.”

 

We may not be able to successfully dissociate the operations of The Body Shop from those of L’Oréal.

 

We acquired The Body Shop from L’Oréal in September 2017. We may not be able to successfully dissociate The Body Shop from the business of L’Oréal. The risks we face in this respect include the failure to adequately replace certain systems and infrastructure to which The Body Shop had access when it was part of the L’Oréal group with equivalent Natura or The Body Shop systems and infrastructure. In addition, the business of The Body Shop could be interrupted, or suffer loss of momentum or key personnel, following its acquisition by us. Any of these factors could adversely affect the business, financial condition and results of operations of The Body Shop and, consequently, our business, financial condition and results of operations.

 

Changes in accounting standards could impact reported earnings.

 

The accounting standard setters and other regulatory bodies periodically change the financial accounting and reporting standards that govern the preparation of our consolidated financial statements. These changes can materially impact how we record and report our financial condition and results of operations. In some cases, we

 

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could be required to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements.

 

Disclosure controls and procedures over financial reporting may not prevent or detect all errors or acts of fraud.

 

Disclosure controls and procedures over financial reporting are designed to provide reasonable assurance that information required to be disclosed by the company is accumulated and communicated to management, and recorded, processed, summarized and reported in accordance with applicable rules.

 

These disclosure controls and procedures have inherent limitations which include the possibility that judgments in decision-making can be faulty and that breakdowns occur because of errors or mistakes. Additionally, controls can be circumvented by any unauthorized override of the controls. Consequently, our businesses are exposed to risk from potential non-compliance with policies, employee misconduct or negligence and fraud, which could result in regulatory sanctions, civil claims and serious reputational or financial harm. It is not always possible to deter employee misconduct and the precautions we take to prevent and detect this activity may not always be effective. Accordingly, because of the inherent limitations in the control system, misstatements due to error or fraud may occur and not be detected.

 

Following the Transaction, Natura &Co Holding, as a foreign private issuer, will need to comply with the reporting, disclosure control and other applicable obligation under the Exchange Act, the Sarbanes-Oxley Act and Dodd Frank Act, as well as rules adopted, and to be adopted, by the SEC and NYSE.  Under Section 404 of the Sarbanes-Oxley Act of 2002, our management is not required to assess or report on the effectiveness of our internal control over financial reporting in our annual report on Form 20-F for the fiscal year ending December 31, 2019. We are only required to provide such a report for the fiscal year ending in December 31, 2020.

 

In addition, we cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our cash flows, results of operations or financial condition. If we are unable to conclude that our internal controls over financial reporting are effective, or if the independent registered public accounting firm reports that we have a material weakness in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the trading price of our shares could decline, and we could be subject to sanctions or investigations by NYSE, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal controls over financial reporting, or to implement or maintain other effective control systems required of public companies in the United States, could also restrict our future access to capital markets and reduce or eliminate the trading market for our shares.

 

Our management is in a process of assessing the effectiveness of our internal controls over financial reporting and our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting. In connection with the audit of our consolidated financial statements for the year ended December 31, 2018, our independent registered public accounting firm reported two deficiencies which were considered material weaknesses in our internal controls over financial reporting as of December 31, 2018. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. 

 

Specifically, the controls over the following matters were not considered fully effective: (i) the design and operating effectiveness of controls over the accounting for certain business combinations and (ii) the design and operating effectiveness of controls over the financial reporting that would prevent, detect and correct material misstatements.

 

We have adopted a remediation plan with respect to the material weaknesses identified above by enhancing our controls over preparation and review of documents that will support management assessments of accounting issues, hiring several new, experienced personnel in our financial reporting organization, adopting revised processes and procedures and modifying our structure, changing certain financial reporting systems and the design of our financial reporting internal controls to provide additional levels of review as well as putting in place an ongoing training program for the finance and accounting staff.

 

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For details of the controls and remediation plan mentioned above, see the section of this joint proxy statement/prospectus entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Natura &Co—Internal Controls and Deficiencies.”

 

Risks Relating to the Countries in Which We Operate

 

Risks related to the economic and political conditions in the countries in which we operate may negatively affect our business.

 

As of December 31, 2018, we had operations throughout the world. We are exposed to the risks related to changes in social, political and economic conditions, including inflation, inherent to foreign operations, which could adversely affect our business, financial condition and results of operations. Changes in laws and policies that govern foreign investment in countries in which we operate, hyperinflation, currency depreciation, exchange controls, changes in consumer buying habits, and changes in procurement channels could also have an adverse effect on our business, financial performance and results of operations.

 

Our business may be materially adversely impacted by unfavorable economic, political, social or other developments and risks in the countries in which we operate.

 

We may be materially adversely affected by unfavorable economic developments in any of the countries where we have distribution networks, marketing companies or production facilities. In particular, our business is dependent on general economic conditions in our most important markets, including in Brazil and the United Kingdom. A significant deterioration in economic conditions in any of our important markets, including economic slowdowns or recessions, inflationary pressures and/or disruptions to credit and capital markets, could lead to decreased consumer confidence and consumer spending more generally, thus reducing demand for our products. Unfavorable economic conditions could also negatively impact our customers, suppliers and financial counterparties, who may experience cash flow problems, increased credit defaults or other financial issues. In addition, volatility in the credit and capital markets caused by unfavorable economic developments and uncertainties could result in a reduction in the availability of, or an increase in the cost of, our financing. Our business could also be affected by other economic developments such as fluctuations in currency exchange rates, the imposition of any import, investment or currency restrictions, including tariffs and import quotas, or any restrictions on the repatriation of earnings and capital. Any of these developments may have a material adverse effect on our business and financial results.

 

Our operations are also subject to a variety of other risks and uncertainties related to its global operations, including adverse political, social or other developments. Political and/or social unrest or uncertainties, potential health issues, natural disasters, politically-motivated violence and terrorist threats and/or act may also occur in countries where we have operations. Any of the foregoing could have a material adverse effect on our business, financial condition and performance.

 

Many of the above risks are heightened, or occur more frequently, in emerging markets. A substantial portion of our operations is conducted in emerging markets. In general, emerging markets are also exposed to relatively higher risks of liquidity constraints, inflation, devaluation, price volatility, currency convertibility, corruption, crime and lack of law enforcement, expropriation of assets, and sovereign default, as well as additional legal and regulatory risks and uncertainties. Developments in emerging markets can affect our ability to import or export products and to repatriate funds, as well as impact levels of consumer demand and therefore our levels of sales or profitability. Any of these factors may affect us disproportionately or in a different manner from our competitors, depending on our specific exposure to any particular emerging market, and could have a material adverse effect on our business and financial results.

 

Changes in existing laws and regulations and/or the imposition of new laws, regulations, restrictions and/or other entry barriers may cause us to incur additional costs to comply with the more stringent rules and/or limit our ability to expand, which could slow down our product development efforts, limit our growth and development and have an adverse impact on our financial position.

 

We are subject to compliance with various laws and regulations relating to cosmetic products and general consumer protection and product safety in the jurisdictions in which we sell our products. These rules principally set out requirements for the composition, testing, labelling and packaging of our products. Failure to comply with these rules may result in the imposition of conditions on or the suspension of sales or seizure of our products, significant penalties or claims and, in some jurisdictions, criminal liability. In the event that the countries in which we sell our

 

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products increase the stringency of such laws and regulations, our production and distribution costs may increase, and we may be unable to pass these additional costs on to our customers. In the event that any such change in law or regulations requires that we obtain a license or permit for our operations, we may be unable to obtain or, if obtained, maintain such license or permit, which may result in a temporary or permanent suspension of some or all of our business activities, which could disrupt our operations and adversely affect our business. Further, in the event that any jurisdiction in which we operate or plan to operate imposes any new laws, regulations, restrictions and/or other barriers to entry, our ability to expand may be thereby limited and our growth and development may be adversely affected.

 

Risks related to Brazilian economic and political conditions may negatively affect our business.

 

We conduct a substantial part of our operations in Brazil. The Brazilian economy has been characterized by frequent and occasionally extensive intervention by the Brazilian government and unstable economic cycles. The Brazilian government has often changed monetary, taxation, credit, tariff and other policies to influence the course of Brazil’s economy. The Brazilian government’s actions to control inflation have at times involved measures relating to monetary policy, taxes, credit, tariffs and other means of influencing the Brazilian economy. The Brazilian government’s actions to control inflation have often involved setting wage and price controls, blocking access to bank accounts, imposing exchange controls and limiting imports into Brazil.

 

Our business, financial performance and results of operations may be adversely affected by changes in policy and regulations involving or affecting certain factors, such as:

 

·inflation;

 

·exchange rate movements;

 

·exchange rate control policies;

 

·interest rate fluctuations;

 

·liquidity available in the domestic capital, credit and financial markets;

 

·expansion or contraction of the Brazilian economy, as measured by rates of growth in gross domestic product, or GDP;

 

·ports, customs and tax authorities’ strikes;

 

·changes in transportation market regulations;

 

·price increases of oil and other inputs;

 

·price instabilities;

 

·fiscal policies; and

 

·other economic, political, diplomatic and social developments in or affecting Brazil.

 

Instability resulting from any changes by the Brazilian government to policies or regulations that may affect these or other factors in the future may contribute to economic uncertainty in Brazil and intensify the volatility of Brazilian securities markets and securities issued abroad by Brazilian companies. The President of Brazil has the power to define the policies and actions of the Brazilian government in relation to the Brazilian economy and thereby affect the operations and financial performance of Brazilian companies, including our own. We cannot fully predict what impact political events and global and Brazilian macroeconomic developments may have on our business. In addition, as a result of the current political instability, there is considerable uncertainty as to future economic policies and we cannot predict which policies will be adopted by the Brazilian government and if these policies will adversely affect the economy, our business or our financial condition. The current political and economic instability has also led to a negative perception of the Brazilian economy and increased volatility in the Brazilian securities market, which may also have an adverse effect on our business. Any recurring economic instability and political uncertainty may adversely affect our business.

 

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The ongoing economic and political crisis in Brazil may have a material adverse effect on our business, operations and financial condition.

 

Brazil’s political environment has historically influenced, and continues to influence, the performance of the country’s economy. Political crises have affected and continue to affect the confidence of investors and the general public and have historically resulted in economic deceleration and heightened volatility in the securities issued by Brazilian companies.

 

The recent economic instability in Brazil has contributed to a decline in market confidence in the Brazilian economy as well as to a deteriorating political environment. Despite the ongoing recovery of the Brazilian economy, weak macroeconomic conditions in Brazil are expected to continue throughout 2019. In addition, various ongoing investigations into allegations of money laundering and corruption being conducted by the Office of the Brazilian Federal Prosecutor, including the largest such investigation known as “Lava Jato,” have negatively impacted the Brazilian economy and political environment. In August 2016, the Brazilian Senate approved the removal of then-President Dilma Rousseff from office, after completion of the legal and administrative impeachment proceedings, on the grounds of violation of budgetary laws. Michel Temer, who had been serving as acting president since her removal in May, assumed full power for the remaining portion of the presidential term, which ended in 2018. In addition, the Dilma/Temer campaign was prosecuted for abuse of political and economic power and illegal campaign financing in the 2014 presidential campaign. On June 9, 2017, the Brazilian Superior Electoral Court cleared Mr. Temer of wrongdoing regarding the 2014 presidential campaign. However, Mr. Temer’s approval ratings remained historically low and he faced scrutiny over other matters, including allegations of bribery and other corrupt acts, which has contributed to the uncertain political and economic environment in Brazil. After a tumultuous presidential campaign, Congressman Jair Bolsonaro defeated Fernando Haddad in the second round of the presidential elections, held on October 28, 2018, and became president of Brazil on January 1, 2019. It is not clear if, and for how long, the political divisions in Brazil that emerged before the election will continue under the Bolsonaro presidency. It is also not clear what effects, if any, such political division will have on the ability of President Bolsonaro to govern Brazil and implement reforms. Any continuation of such division could result in an impasse in Brazil’s Congress, political unrest and massive protests and/or strikes that could adversely affect our operations.

 

Furthermore, Brazil’s federal budget has been in deficit since 2014. Similarly, the governments of Brazil’s constituent states are also facing fiscal concerns due to their high debt burdens, declining revenues and inflexible expenditures. While the Brazilian Congress has approved a ceiling on government spending that will limit primary public expenditure growth to the prior year’s inflation for a period of at least 10 years, local and foreign investors believe that fiscal reforms, and in particular a reform of Brazil’s pension system, will be critical for Brazil to comply with the spending limit. As of the date of this joint proxy statement/prospectus, the Brazilian Congress has begun approving a reform of the country’s pension system. Diminished confidence in the Brazilian government’s budgetary condition and fiscal stance could result in downgrades of Brazil’s sovereign debt by credit rating agencies, negatively impact Brazil’s economy, lead to further depreciation of the real and an increase in inflation and interest rates, thus adversely affecting our business, results of operations and financial condition.

 

During his presidential campaign, Mr. Bolsonaro was reported to favor the privatization of state-owned companies, economic liberalization, and social security and tax reforms. However, there is no guarantee that Mr. Bolsonaro will be successful in executing his campaign promises or passing certain favored reforms fully or at all, particularly when confronting a fractured Congress. In addition, his current minister of the economy, Paulo Guedes, proposed during the presidential campaign the revocation of income tax exemption on the payment of dividends, which, if enacted, would increase the tax expenses associated with any dividend or distribution by Brazilian companies, which could impact our capacity to receive, from our subsidiaries, future cash dividends or distributions net of taxes. Moreover, Mr. Bolsonaro was generally a polarizing figure during his campaign for presidency, particularly in relation to certain of his behavioral views, and we cannot predict the ways in which a divided electorate may continue to impact his presidency and ability to implement policies and reforms, all of which could have a negative impact on our business and the price of our common shares. Any continuation of such division could result in an impasse in Brazil’s Congress, political unrest and massive protests and/or strikes that could adversely affect our operations. Uncertainty regarding the implementation by the new government of related changes in monetary, fiscal and pension policies, as well as pertinent legislation, could contribute to the economic instability. These uncertainties and new measures could increase the volatility of Brazilian securities markets.

 

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We are not able to fully estimate the impact of global and Brazilian political and macroeconomic developments on our business. Recent economic and political instability has led to a negative perception of the Brazilian economy and increased volatility in the Brazilian securities markets, which also may adversely affect us and our securities. Any continued economic instability and political uncertainty may materially adversely affect our business and the trading prices of any of our securities.

 

Inflation and government measures to curb inflation may adversely affect the Brazilian economy, the Brazilian securities market, our business and operations.

 

In the past, Brazil has experienced extremely high rates of inflation. Inflation and some of the measures taken by the Brazilian government in an attempt to curb inflation have had significant negative effects on the Brazilian economy generally. Inflation, policies adopted to curb inflationary pressures and uncertainties regarding possible future governmental intervention have contributed to economic uncertainty and heightened volatility in the Brazilian capital markets. According to the General Price Market Index (Índice Geral de Preços-Mercado), calculated and published by Fundação Getúlio Vargas, or IGP-M, a general price inflation index, the inflation rates in Brazil were 7.6%, 0.5% and 7.2%, respectively, for the fiscal years ended December 31, 2018, 2017 and 2016.

 

In addition, according to the National Extended Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo), or IPCA, published by the IBGE, the Brazilian price inflation rates were 3.7%, 2.9% and 6.3%, respectively, for the fiscal years ended December 31, 2018, December 31, 2017 and December 31, 2016. Between January 2004 and December 2010, the SELIC rate varied between 8.65% per annum and 19.75% per annum. In 2011, the SELIC rate varied between 10.66% per annum and 12.42% per annum, in 2012 between 7.11% per annum and 10.90% per annum, in 2013 between 7.14% per annum and 9.90% per annum, in 2014 between 9.90% per annum and 11.65% per annum, in 2015 between 11.65% per annum and 14.15% per annum, in 2016 between 14.15% per annum and 13.65% per annum, in 2017 between 13.65% and 6.90% per annum and in 2018 between 6.90% and 6.40% per annum.

 

Inflation and the Brazilian government’s measures to control inflation, primarily through the Brazilian Central Bank, have had and continue to have considerable effects on the Brazilian economy and on our business. Brazil may experience substantial increases in inflation rates in future periods. Inflationary pressures may lead the Brazilian federal government to intervene in the economy, including through the implementation of governmental policies that may have an adverse effect on us and our clients. If Brazil experiences high inflation rates, we may not be able to adjust the prices of our products in order to compensate for the effects of inflation in our costs structure, which may have an adverse effect on us. We also have operational lease agreements with adjustment directly linked to inflation which could be materially and adversely affected if the Brazilian federal government is unable to contain the rise inflation rates.

 

Exchange rate instability may have adverse effects on the Brazilian economy, us and the price of our securities.

 

The Brazilian currency has been historically volatile and has been devalued frequently over the past three decades. Throughout this period, the Brazilian government has implemented various economic plans and used various exchange rate policies, including sudden devaluations, periodic mini-devaluations (during which the frequency of adjustments has ranged from daily to monthly), exchange controls, dual exchange rate markets and a floating exchange rate system. Although long-term depreciation of the real is generally linked to the rate of inflation in Brazil, depreciation of the real occurring over shorter periods of time has resulted in significant variations in the exchange rate between the real, the U.S. dollar and other currencies. The real depreciated against the U.S. dollar by 32.0% at year-end 2015 as compared to year-end 2014, and by 11.8% at year-end 2014 as compared to year-end 2013. The real/U.S. dollar exchange rate reported by the Brazilian Central Bank was R$3.9048 per U.S. dollar on December 31, 2015 and R$3.2591 per U.S. dollar on December 31, 2016, which reflected a 16.5% appreciation in the real against the U.S. dollar during 2016. The real/U.S. dollar exchange rate reported by the Brazilian Central Bank was R$3.308 per U.S. dollar on December 31, 2017, which reflected a 1.5% depreciation in the real against the U.S. dollar during 2017. The real/U.S. dollar exchange rate reported by the Brazilian Central Bank was R$3.875 per U.S.$1.00 on December 31, 2018, which reflected a 17.1% depreciation in the real against the U.S. dollar during 2018. There can be no assurance that the real will not again depreciate against the U.S. dollar or other currencies in the future.

 

Depreciation of the real relative to the U.S. dollar could result in additional inflationary pressures in Brazil, thereby leading to an increase in interest rates, limiting our access to foreign financial markets and weakening

 

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investor confidence in Brazil, and requiring the implementation of recessionary policies by the Brazilian federal government. On the other hand, the appreciation of the real against the U.S. dollar may lead to a deterioration of the country’s current account and the balance of payments and may dampen the country’s exports. Any of these events may damage the Brazilian economy as a whole.

 

High interest rates may adversely affect our operations and financial condition.

 

The Brazilian government’s measures to control inflation have frequently included maintaining a restrictive monetary policy with high interest rates, thereby limiting the availability of credit and reducing economic growth. As a consequence, official interest rates in Brazil at the end of 2018, 2017, 2016 and 2015 were 6.50%, 7.00%, 8.25%, 13.75% and 14.25% per period, respectively, as established by the monetary policy committee of the Brazilian Central Bank (COPOM). Brazilian interest rates have remained high and any increase of such interest rates may negatively affect our profits and results of operations, thereby increasing the costs of financing our operations. High interest rates may impact our cost of obtaining loans and also the cost of indebtedness, resulting in an increase in our financial expenses. This increase may adversely affect our ability to pay our financial obligations, as it reduces our cash availability. Mismatches between contracted indexes for assets versus liabilities and/or high volatilities in interest rates may result in financial losses for us.

 

Infrastructure and workforce deficiency in Brazil may impact economic growth and have a material adverse effect on us.

 

Our performance depends on the overall health and growth of the Brazilian economy. Brazilian GDP grew by 1.9% in 2012, improving by 3.0% in 2013 but decreasing by 0.1% in 2014, then contracting by 3.8% and 3.6% in 2015 and 2016, respectively, grew by 1.0% in 2017, and grew by 1.1% in 2018 compared to 2017. Continued growth is limited by inadequate infrastructure, including potential energy shortages and deficient transportation, logistics and telecommunication sectors, the lack of a qualified labor force, and the lack of private and public investments in these areas, which limit productivity as well as efficiency. Any of these factors could lead to labor market volatility and generally impact income, purchasing power and consumption levels, which could limit growth or result in contraction and ultimately have a material adverse effect on our business.

 

Developments and the perception of risk in other countries may adversely affect the Brazilian economy and market price of Brazilian issuers’ securities.

 

The market value of securities of Brazilian issuers is affected by economic and market conditions in other countries, including the United States, European countries, as well as in other Latin American and emerging market countries. Although economic conditions in Europe and the United States may differ significantly from economic conditions in Brazil, investors’ reactions to developments in these other countries may have an adverse effect on the market value of securities of Brazilian issuers. Additionally, crises in other emerging market countries may diminish investor interest in securities of Brazilian issuers, including our securities. This could adversely affect the market price of our securities, restrict our access to capital markets and compromise our ability to finance our operations in the future on favorable terms, or at all.

 

In 2016, 2017 and 2018, there was an increase in volatility in the main Brazilian markets due to, among other factors, uncertainties about how monetary policy adjustments in the United States would affect the international financial markets, the increasing risk aversion to emerging market countries, and the uncertainties regarding Brazilian macroeconomic and political conditions. These uncertainties adversely affected us and the market value of our securities. In addition, we currently continue to be exposed to disruptions and volatility in the global financial markets because of their effects on the financial and economic environment, particularly in Brazil, such as a slowdown in the economy, an increase in the unemployment rate, a decrease in the purchasing power of consumers and the lack of credit availability. Disruption or volatility in the global financial markets could further increase negative effects on the financial and economic environment in Brazil, which could have a material adverse effect on our business, results of operations and financial condition.

 

Any further downgrading of Brazil’s credit rating could reduce the trading price of our securities.

 

We may be harmed by investors’ perceptions of risks related to Brazil’s sovereign debt credit rating. Rating agencies regularly evaluate Brazil and its sovereign ratings, which are based on a number of factors including

 

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macroeconomic trends, fiscal and budgetary conditions, indebtedness metrics and the perspective of changes in any of these factors.

 

The rating agencies began to review Brazil’s sovereign credit rating in September 2015. Subsequently, the three major rating agencies downgraded Brazil’s investment-grade status:

 

·Standard & Poor’s initially downgraded Brazil’s credit rating from BBB-negative to BB-positive and subsequently downgraded it again from BB-positive to BB, maintaining its negative outlook, citing a worse credit situation since the first downgrade. On January 11, 2018, Standard & Poor’s further downgraded Brazil’s credit rating from BB to BB-negative.

 

·In December 2015, Moody’s placed Brazil’s Baa3’s issue and bond ratings under review for downgrade and subsequently downgraded the issue and bond ratings to below investment grade, at Ba2 with a negative outlook, citing the prospect of a further deterioration in Brazil’s debt indicators, taking into account the low growth environment and the challenging political scenario.

 

·Fitch downgraded Brazil’s sovereign credit rating to BB-positive with a negative outlook, citing the rapid expansion of the country’s budget deficit and the worse-than-expected recession. In February 2018, Fitch downgraded Brazil’s sovereign credit rating again to BB-negative, citing, among other reasons, fiscal deficits, the increasing burden of public debt and an inability to implement reforms that would structurally improve Brazil’s public finances. Brazil’s sovereign credit rating is currently rated below investment grade by the three main credit rating agencies. Consequently the prices of securities issued by Brazilian companies have been negatively affected. A prolongation or worsening of the current Brazilian recession and continued political uncertainty, among other factors, could lead to further ratings downgrades. Any further downgrade of Brazil’s sovereign credit ratings could heighten investors’ perception of risk and, as a result, cause the trading price of our securities to decline.

 

The exit of the U.K. from the European Union could adversely impact global economic or market conditions.

 

On June 23, 2016, the U.K. electorate voted in a general referendum in favor of the U.K.’s exit from the European Union (so-called “Brexit”). On March 29, 2017, the U.K. gave formal notice under Article 50 of the Treaty on European Union of its intention to leave the European Union. The announcement of Brexit caused significant volatility in global stock markets and currency exchange rate fluctuations. The ongoing process of negotiations between the U.K. and the European Union will determine the future terms of the U.K.’s relationship with the European Union, including access to European Union markets, either during a transitional period or more permanently. Although the U.K. was initially due to leave the European Union on March 29, 2019, this deadline has been extended to October 31, 2019. Despite this extension, we note that no withdrawal agreement has yet been approved. Brexit could lead to potentially divergent laws and regulations as the U.K. determines which European Union laws to replace or replicate. Uncertainty regarding the terms of Brexit, and is eventual effects once implemented, could adversely affect global economic or market conditions and investor confidence. This could, in turn, adversely affect our business and/or the market value of our securities.

 

Future governmental policy and regulations may adversely affect our operations and profitability.

 

Trade flows are materially affected by policies and regulations from Brazilian and foreign federal, state and municipal government. Governmental policies affecting economic activity such as tariffs, taxes, subsidies and restrictions on the import and export of agricultural goods and commodities, which represent a substantial part of the cargo we transport, may influence the profitability of the industry as well as the volume and type of imports and exports. Future Brazilian and foreign governmental policies may adversely affect the supply, demand and prices of our logistic services or otherwise restrict our capacity to operate in our current or prospective markets, potentially materially adversely affecting our financial performance.

 

The ongoing investigations regarding corruption in Brazil may materially adversely affect the growth of the Brazilian economy and could have a material adverse effect on our business.

 

Petrobras (Brazil’s state-owned oil company and one of the country’s largest companies in the oil, gas, energy and infrastructure sector) and a number of other Brazilian companies are facing investigations by the CVM, the SEC, the Brazilian Federal Police and the Brazilian Federal Prosecutor’s Office, the Comptroller General of Brazil

 

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and other relevant governmental authorities, in connection with corruption allegations (the so called “Lava Jato” investigations). In addition, elected officials and other public officials in Brazil are also being investigated for allegations of unethical and illegal conduct identified during the Lava Jato investigations, as well as other investigations.

 

Depending on the duration and outcome of such investigations, initiated in 2014, the companies involved may face an additional reduction in their revenues, downgrades from rating agencies or funding restrictions, among other negative effects. These investigations have had and may continue to have an adverse effect on Brazil’s growth prospects in the near to medium term given the relatively significant weight in relation to the Brazilian economy of the companies cited in the investigation. Negative effects on a number of companies may also impact the level of investments in infrastructure in Brazil, which may lead to lower economic growth in the near to medium term.

 

If we do not successfully comply with laws and regulations designed to prevent governmental corruption in countries in which we sell our products, we could become subject to fines, penalties or other regulatory sanctions and our sales and profitability could suffer.

 

Our anti-corruption policies and procedures designed to prevent governmental corruption violations may not prevent our management, employees or third parties acting on our behalf in the countries in which we operate from taking actions that violate applicable laws and regulations on improper payments to government officials for the purpose of obtaining or keeping business or business advantages. Laws prohibiting such behaviors include (but are not limited to) laws relating to the OECD’s 1997 Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, such as the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and the Brazilian Anti-Corruption Act. Any breach thereof may have a material adverse effect on our business, including the acceleration of loans and financing.

 

The Brazilian Anti-Corruption Act imposes strict liability on companies for acts of corruption, fraud or manipulation of public tenders and government contracts; and interference with investigations or inspections by governmental authorities. Companies found liable under the Brazilian Anti-Corruption Act face fines of up to 20% of their gross revenue in the immediately preceding year or, if such annual gross revenue cannot be estimated, such fines may range from R$6 thousand to R$60 million. Among other sanctions, the Brazilian Anti-Corruption Act also provides for the seizure of assets or benefits obtained illegally, the suspension or partial prohibition of operations, the dissolution of the entity and/or the prohibition to receive incentives, subsidies, donations or financing from the government or from government-controlled entities for up to five years. Other relevant laws applicable to corruption-related violations, such as the Brazilian Administrative Improbity Law (Law No. 8.492/92), also provide for penalties that include the prohibition to enter into government contracts for up to ten years.

 

Consequently, if we, our management, employees or third parties acting on our behalf in the countries in which we sell our products become involved in any anti-corruption or criminal investigations or proceedings in connection to our business in Brazil or in any other jurisdiction, our business could be materially adversely affected.

 

Risks Relating to the Natura &Co Holding Shares and Natura &Co Holding ADSs

 

Natura &Co Holding Shares and Natura &Co Holding ADSs to be received by Natura Cosméticos shareholders and Avon shareholders as a result of the Transaction will have rights different from the Natura Cosméticos Shares and Avon Shares they hold prior to the Transaction.

 

Upon completion of the Transaction, the rights of former Natura Cosméticos shareholders and Avon shareholders who become shareholders of Natura &Co Holding will be governed by the Natura &Co Holding By-Laws (the “Natura &Co Holding By-Laws”), and by the laws of Brazil. The rights associated with Natura Cosméticos Shares and Avon Shares are different from the rights associated with Natura &Co Holding Shares and Natura &Co Holding ADSs. Material differences between the rights of shareholders of Avon and the rights of shareholders of Natura &Co Holding include differences with respect to, among other things, distributions, dividends, repurchases and redemptions, dividends in shares/bonus issues, preemptive rights, the election of directors, the removal of directors, the duties of directors, conflicts of interests of directors, the indemnification of directors and officers, limitations on director liability, the convening of annual meetings of shareholders and special shareholder meetings, notice provisions for meetings, the quorum for shareholder meetings, the adjournment or postponement of shareholder meetings, the exercise of voting rights, shareholder action by written consent, shareholder suits, shareholder approval of certain transactions, rights of dissenting shareholders and provisions

 

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relating to the ability to amend governing documents. See the section of this joint proxy statement/prospectus entitled “Comparison of the Rights of Holders of Natura &Co Holding Shares and Avon Shares.”

 

The trading of Natura &Co Holding Shares and Natura &Co Holding ADSs after completion of the Transaction may cause the market price of Natura &Co Holding Shares and Natura &Co Holding ADSs to fall.

 

Following completion of the Transaction, the Natura &Co Holding Shares are expected to be publically traded on the B3 and the Natura &Co Holding ADSs are expected to be publically traded on the NYSE, enabling former Avon shareholders to sell the Natura &Co Holding Shares and Natura &Co Holding ADSs they receive in the Transaction. Such sales of Natura &Co Holding Shares and Natura &Co Holding ADSs may take place promptly following the Transaction and could have the effect of decreasing the market price for Natura &Co Holding Shares and Natura &Co Holding ADSs owned by former Avon shareholders and Natura Cosméticos shareholders below the market price of the Avon Shares or Natura Cosméticos Shares owned by such Avon shareholders and Natura Cosméticos shareholders prior to completion of the Transaction.

 

You are being offered a fixed number of Natura &Co Holding or Natura &Co Holding ADSs, which involves the risk of market fluctuations.

 

You will receive a fixed number of Natura &Co Holding Shares or Natura &Co Holding ADSs in the Transaction, rather than a number of Natura &Co Holding Shares or Natura &Co Holding ADSs with a fixed market value. Consequently, the market value of Natura &Co Holding Shares or Natura &Co Holding ADSs, and of the Avon Shares at the time of the completion of the Transaction, may fluctuate significantly from the date of this joint proxy statement/prospectus, and the exchange ratio that has been approved for this Transaction might not be reflective of future market price ratios of Natura &Co Holding Shares or Natura &Co Holding ADSs relative to Avon Shares. In addition, the market price of Natura &Co Holding Shares or Natura &Co Holding ADSs and Avon Shares may be adversely affected by arbitrage activities occurring prior to the completion of the Transaction. These sales, or the prospects of such sales in the future, could adversely affect the market price for, and the ability to sell in the market, Avon Shares before the Transaction is completed and Natura &Co Holding Shares or Natura &Co Holding ADSs before and after the Transaction is completed.

 

No trading market currently exists for Natura &Co Holding Shares and Natura &Co Holding ADSs.

 

Prior to the Transaction, there has been no market for Natura &Co Holding Shares and Natura &Co Holding ADSs. The Natura &Co Holding Shares are expected to be listed for trading on the B3 and the Natura &Co Holding ADSs are expected to be listed for trading on the NYSE. However, there can be no assurance that an active market for Natura &Co Holding Shares and Natura &Co Holding ADSs will develop after closing of the Transaction, or if it develops, that such market will be sustained. In the absence of an active trading market for the Natura &Co Holding Shares and Natura &Co Holding ADSs, investors may not be able to sell their Natura &Co Holding Shares and Natura &Co Holding ADSs at the time that they would like to sell.

 

Natura &Co Holding ADSs may not be as liquid as Natura &Co Holding Shares, or shareholders’ existing Avon Common Shares or Natura Cosméticos Shares.

 

Some companies that have issued ADSs on U.S. stock exchanges have experienced lower levels of liquidity in their ADSs than is the case for their equity securities listed on their domestic exchange. There is a possibility that Natura &Co Holding ADSs listed on the NYSE will be less liquid than Natura &Co Holding Shares listed on the B3. In addition, investors may incur higher transaction costs when buying and selling Natura &Co Holding ADSs than they would incur in buying and selling Natura &Co Holding Shares or Avon Common Shares.

 

There is no guarantee that an active public market in Natura &Co Holding ADSs will develop or be sustained after consummation of the Transaction. If an active market for Natura &Co Holding ADSs does not develop after consummation of the Transaction, the market price and liquidity of Natura &Co Holding ADSs may be adversely affected.

 

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The market price of Natura &Co Holding Shares and Natura &Co Holding ADSs after the Transaction may be affected by factors different from those that may currently affect the market price of Natura Cosméticos Shares and Avon Shares.

 

Upon completion of the Transaction, holders of Avon Shares will become holders of Natura &Co Holding Shares or Natura &Co Holding ADSs. Natura &Co Holding’s combined businesses following the Transaction will differ from those of Natura and Avon, respectively, prior to completion of the Transaction in important respects and, accordingly, after the Transaction, the market price of Natura &Co Holding Shares and Natura &Co Holding ADSs may be affected by factors different from those currently affecting the market price of Natura Cosméticos Shares and Avon Shares, separately.

 

The Depositary Trust Company may not accept Natura &Co Holding ADSs for deposit and clearing within their facilities or may cease to act as depository and clearing agencies for Natura &Co Holding ADSs.

 

Although Natura &Co expects and will take all reasonable steps to ensure that, upon completion of the Transaction, Natura &Co Holding ADSs will be eligible for deposit and clearing within the clearance services, the clearance services are not obligated to accept Natura &Co Holding ADSs for deposit and clearing within their facilities at completion of the Transaction and, even if they do initially accept Natura &Co Holding ADSs, they will generally have discretion to cease to act as depository and clearing agencies for Natura &Co Holding ADSs. If the clearance services determine at any time that Natura &Co Holding ADSs are not eligible for continued deposit and clearance within their facilities, then Natura &Co believes that Natura &Co Holding ADSs would not be eligible for continued listing on the NYSE and trading in Natura &Co Holding ADSs would be disrupted. While Natura &Co would pursue alternative arrangements to preserve the listing and maintain trading, any such disruption could have a material adverse effect on the trading price of Natura &Co Holding ADSs.

 

Natura &Co Holding’s maintenance of two exchange listings may adversely affect liquidity in the market for Natura &Co Holding Shares Natura &Co Holding ADSs and result in pricing differentials between the two exchanges.

 

It is expected that the Natura &Co Holding Shares will be listed on the B3 and that the Natura &Co Holding ADSs will be listed on the NYSE. It is not possible to predict how trading will develop on such markets. The listing of Natura &Co Holding Shares and Natura &Co Holding ADSs on two distinct exchanges may adversely affect the liquidity of such shares in one or both markets and may adversely affect the development of an active trading market for Natura &Co Holding Shares on the B3 Natura &Co Holding ADSs on the NYSE. In addition, differences in the trading schedules, as well as the volatility in the exchange rate of the two trading currencies, may result in different trading prices for Natura &Co Holding Shares and Natura &Co Holding ADSs.

 

There has been no prior public market for Natura &Co Holding ADSs, and the market price of Natura &Co Holding ADSs may be volatile.

 

Natura &Co plans to list the Natura &Co Holding Shares on the B3 and the Natura &Co Holding ADSs on the NYSE. The market price of Natura &Co Holding Shares and Natura &Co Holding ADSs may be volatile. Broad general economic, political, market and industry factors may adversely affect the market price of Natura &Co Holding Shares and Natura &Co Holding ADSs, regardless of Natura &Co Holding’s actual operating performance. Factors that could cause fluctuations in the price of Natura &Co Holding Shares and Natura &Co Holding ADSs include:

 

·actual or anticipated variations in quarterly operating results and the results of competitors;

 

·changes in financial projections by Natura &Co, if any, or by any securities analysts that might cover Natura &Co Holding ADSs;

 

·conditions or trends in the industry, including regulatory changes or changes in the securities marketplace;

 

·announcements by Natura &Co Holding or its competitors of significant acquisitions, strategic partnerships or divestitures;

 

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·announcements of investigations or regulatory scrutiny of Natura &Co Holding’s operations or lawsuits filed against it;

 

·additions or departures of key personnel; and

 

·issuances or sales of Natura &Co Holding Shares or Natura &Co Holding ADSs, including sales of shares by its directors and officers or its key investors.

 

Shareholders could be diluted in the future, which could also adversely affect the market price of Natura &Co Holding Shares and Natura &Co Holding ADSs.

 

It is possible that Natura &Co Holding may decide to offer additional Natura &Co Holding Shares or Natura &Co Holding ADSs in the future either to raise capital or for other purposes. If Natura &Co Holding shareholders do not take up such offer of Natura Cosméticos Shares or Natura &Co Holding Shares or Natura &Co Holding ADSs or were not eligible to participate in such offering, their proportionate ownership and voting interests in Natura &Co would be reduced. An additional offering could have a material adverse effect on the market price of Natura &Co Holding ADSs.

 

Exchange controls and restrictions on remittances abroad may adversely affect holders of the Natura &Co Holding ADSs.

 

Brazilian laws provide that whenever a serious imbalance in Brazil’s balance of payments exists or is anticipated, the Brazilian federal government may impose temporary restrictions on the repatriation by foreign investors of the proceeds of their investment in Brazil and on the conversion of Brazilian currency into foreign currency. For example, for six months in 1989 and early 1990, the Brazilian federal government restricted all fund transfers that were owed to foreign equity investors and held by the Brazilian Central Bank, in order to preserve Brazil’s foreign currency reserves. These amounts were subsequently released in accordance with Brazilian federal government directives. Although the Brazilian federal government has never exercised such a prerogative since, we cannot guarantee that the Brazilian federal government will not take similar actions in the future.

 

You may be adversely affected if the Brazilian federal government imposes restrictions on the remittance to foreign investors of the proceeds of their investments in Brazil and, as it has done in the past, on the conversion of the real into foreign currencies. These restrictions could hinder or prevent the conversion of dividends, distributions or the proceeds from any sale of shares, as the case may be, into U.S. dollars and the remittance of U.S. dollars abroad. We cannot assure that the government will not take this measure or similar measures in the future. Holders of the Natura &Co Holding ADSs could be adversely affected by delays in, or a refusal to grant, any required governmental approval for conversion of real payments and remittances abroad in respect of the shares, including the shares underlying the Natura &Co Holding ADSs. In such a case, the ADS Depositary will distribute reais or hold the reais it cannot convert for the account of the Natura &Co Holding ADS holders who have not been paid.

 

Holders of the Natura &Co Holding ADSs may face difficulties in serving process on or enforcing judgments against us and other persons.

 

We are organized under and are subject to the laws of Brazil, and all our directors and executive officers and our independent registered public accounting firm reside or are based in Brazil. Substantially all of our assets and those of these other persons are located in Brazil. As a result, it may not be possible for holders of the Natura &Co Holding ADSs to effect service of process upon us or these other persons within the United States or other jurisdictions outside Brazil or to enforce against us or these other persons judgments obtained in the United States or other jurisdictions outside Brazil. Because judgments of U.S. courts for civil liabilities based upon the U.S. federal securities laws may only be enforced in Brazil if certain conditions are met, our Natura &Co Holding ADS holders may face greater difficulties in protecting their interests due to actions by us or our directors or executive officers than would shareholders of a U.S. corporation.

 

The relative volatility and illiquidity of the Brazilian securities markets may adversely affect holders of the Natura &Co Holding Shares and Natura &Co Holding ADSs.

 

Investments in securities, such as our common shares or Natura &Co Holding ADSs, of issuers from emerging market countries, including Brazil, involve a higher degree of risk than investments in securities of issuers from more developed countries. The Brazilian securities market is substantially smaller, less liquid, more concentrated

 

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and more volatile than major securities markets in the United States and other jurisdictions, and may be regulated differently from the ways familiar to U.S. investors. There is also significantly greater concentration in the Brazilian securities market than in major securities markets in the United States. These features may substantially limit the ability to sell the Natura &Co Holding Shares, including the Natura &Co Holding Shares underlying the Natura &Co Holding ADSs, at a price and time at which holders wish to do so. A liquid and active market may never develop for the Natura &Co Holding ADSs, and as a result, the ability of holders of the Natura &Co Holding ADSs to sell at the desired price or time may be significantly hindered.

 

Holders of the Natura &Co Holding ADSs may face difficulties in protecting their interests because we are subject to different corporate rules and regulations than a U.S. company and holders of the Natura &Co Holding ADSs may have fewer and less well-defined rights.

 

Holders of Natura &Co Holding ADSs are not direct shareholders of Natura &Co Holding and may be unable to enforce the rights of shareholders under our by-laws and Brazilian law, and holders of Natura &Co Holding Shares are generally required under our by-laws to resolve any disputes with us through arbitration. Our corporate affairs are governed by our by-laws and Brazilian law, which differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States, or elsewhere outside Brazil. Although insider trading and price manipulation are crimes under Brazilian law, the Brazilian securities markets are not as highly regulated and supervised as the U.S. securities markets or the markets in some other jurisdictions. In addition, rules and policies against self-dealing or for preserving shareholder interests may also be less well-defined and enforced in Brazil than in the United States and certain other countries, which may put holders of the Natura &Co Holding ADSs at a potential disadvantage.

 

Holders of the Natura &Co Holding ADSs do not have the same voting rights as our shareholders.

 

Holders of the Natura &Co Holding ADSs do not have the same voting rights as holders of the Natura &Co Holding Shares. Holders of the Natura &Co Holding ADSs are entitled to the contractual rights set forth for their benefit under the Natura &Co Holding deposit agreement. Natura &Co Holding ADS holders exercise voting rights by providing instructions to the ADS Depositary (as defined herein), as opposed to attending shareholders’ meetings or voting by other means available to shareholders. In practice, the ability of a holder of Natura &Co Holding ADSs to instruct the ADS Depositary as to voting will depend on the timing and procedures for providing instructions to the ADS Depositary, either directly or through the holder’s custodian and clearing system.

 

Due to delays in notification to and by the ADS Depositary, the holders of the Natura &Co Holding ADSs may not be able to give voting instructions to the ADS Depositary or to withdraw the Natura &Co Holding Shares underlying their Natura &Co Holding ADSs to vote such shares in person or by proxy.

 

Despite Natura &Co Holding’s efforts, the ADS Depositary may not receive voting materials for Natura &Co Holding Shares represented by Natura &Co Holding ADSs in time to ensure that holders of such Natura &Co Holding ADSs can either instruct the ADS Depositary to vote the Natura &Co Holding Shares underlying their Natura &Co Holding ADSs or withdraw such shares to vote them in person or by proxy.

 

In addition, the ADS Depositary’s liability to holders of Natura &Co Holding ADSs for failing to execute voting instructions, or for the manner in which voting instructions are executed, will be limited by the deposit agreement for the Natura &Co Holding ADSs. As a result, holders of Natura &Co Holding ADSs may not be able to exercise their rights to give voting instructions, or to vote in person or by proxy, and may not have any recourse against the ADS Depositary or Natura &Co Holding if the Natura &Co Holding Shares underlying their Natura &Co Holding ADSs are not voted as they have requested or if the Natura &Co Holding Shares underlying their Natura &Co Holding ADSs cannot be voted.

 

An exchange of Natura &Co Holding ADSs for shares risks the loss of certain foreign currency remittance advantages.

 

The Natura &Co Holding ADSs benefit from the certificate of foreign capital registration, which permits the ADS Depositary to convert dividends and other distributions with respect to common shares into foreign currency, and to remit the proceeds abroad. Holders of Natura &Co Holding ADSs who exchange their Natura &Co Holding ADSs for Natura &Co Holding Shares will then be entitled to rely on the ADS Depositary’s certificate of foreign capital registration for five business days from the date of exchange. Thereafter, they will not be able to remit non-

 

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Brazilian currency abroad unless they obtain their own certificate of foreign capital registration, or unless they qualify under Resolution No. 4,373/2014 of the CMN, which entitles certain investors to buy and sell shares on Brazilian stock exchanges without obtaining separate certificates of registration. There can be no assurance that the certificate of registration of the ADS Depositary, or any certificate of foreign capital registration obtained by holders of Natura &Co Holding ADSs, will not be affected by future legislative or regulatory changes, or that additional Brazilian law restrictions applicable to their investment in the Natura &Co Holding ADSs may not be imposed in the future.

 

Under Brazilian tax law, the disposition of Natura &Co Holding Shares will be subject to Brazilian tax and the disposition of Natura &Co Holding ADSs may also be subject to Brazilian tax.

 

Brazilian Law No. 10,833/03 provides that gains on the disposition of assets located in Brazil by non-residents of Brazil, whether to other non-residents or to Brazilian residents, will be subject to Brazilian taxation.

 

While we do not expect the Natura &Co Holding ADSs to be treated as assets located in Brazil, they may be treated as assets located in Brazil for purposes of the law, and therefore gains on the disposition of Natura &Co Holding ADSs by non-residents of Brazil may be subject to Brazilian taxation. Although the holders of Natura &Co Holding ADSs outside Brazil may have grounds to assert that Law No. 10,833/03 does not apply to sales or other dispositions of Natura &Co Holding ADSs, it is not possible to predict whether that understanding will ultimately prevail in the courts of Brazil given the general and unclear scope of Law No. 10,833/03 and the absence of judicial court rulings in respect thereof.

 

Natura &Co Holding Shares are expected to be treated as assets located in Brazil for purposes of the law, and gains on the disposition of Natura &Co Holding Shares, even by non-residents of Brazil, as a general rule, are expected to be subject to Brazilian taxation. Despite such general rule, capital gains assessed by foreign investors on the sale of the Natura &Co Holding Shares in the Brazilian stock exchange are currently exempt from taxation in Brazil, provided that (i) the investment in the Natura &Co Holding Shares are carried out pursuant to Resolution 4,373 and (ii) the investor is not resident or domiciled in a tax haven jurisdiction.

 

Holders of the Natura &Co Holding ADSs may not be able to exercise the preemptive rights relating to the Natura &Co Holding Shares.

 

Holders of the Natura &Co Holding ADSs may not be able to exercise the preemptive rights relating to the Natura &Co Holding Shares underlying their Natura &Co Holding ADSs unless a registration statement under the Securities Act is effective with respect to the rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the shares or other securities relating to these preemptive rights, and we cannot assure holders of the Natura &Co Holding ADSs that we will file any such registration statement. Unless we file a registration statement or an exemption from registration applies, holders of the Natura &Co Holding ADSs may receive only the net proceeds from the sale of their preemptive rights by the ADS Depositary or, if the preemptive rights cannot be sold, the rights will be allowed to lapse. For a more complete description of preemptive rights with respect to the common shares, see “Description of Natura &Co Holding Shares and Natura &Co Holding By-Laws—Preemptive Rights.”

 

Our future issuances of new securities may result in a dilution of our shareholders’ stake.

 

We may seek to raise additional capital in the future through public or private issuances of shares or securities convertible into shares. According to Article 172 of the Brazilian Corporation Law, we may not be required to grant preemptive rights to our shareholders in the event of a capital increase through a public offering of shares or securities convertible into shares, which may result in a dilution of our current shareholders’ stake in our company.

 

The holders of the Natura &Co Holding Shares (including the Natura &Co Holding Shares underlying the Natura &Co Holding ADSs) may not receive dividends or interest on own capital.

 

According to our by-laws, our shareholders are entitled to receive a mandatory minimum annual dividend equal to 30% of our annual net profit, calculated and adjusted under the terms of the Brazilian Corporation Law. Our by-laws allow for the payment of intermediary dividends, to the retained earnings account or the existing earnings reserves in the last yearly or six-month balance, by means of the annual dividend. We may also pay interest on own capital, as described by Brazilian law. The intermediary dividends and the interest on own capital declared in each fiscal period may be imputed to the mandatory dividend that results from the fiscal period in which they are

 

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distributed. At the general shareholders’ meeting, shareholders may decide on the capitalization, on the offset of our losses or on the net profit retention, as provided for in the Brazilian Corporation Law, with the aforementioned net profit not being made available for the payment of dividends or interest on own capital.

 

Judgments of Brazilian courts with respect to our shares will be payable only in reais.

 

If proceedings are brought in the courts of Brazil seeking to enforce our obligations in respect of the Natura &Co Holding Shares, we will not be required to discharge our obligations in a currency other than reais. Under Brazilian exchange control limitations, an obligation in Brazil to pay amounts denominated in a currency other than reais may only be satisfied in Brazilian currency at the exchange rate, as determined by the Brazilian Central Bank, in effect on the date the judgment is obtained, and such amounts are then adjusted to reflect exchange rate variations through the effective payment date. The then-prevailing exchange rate may not afford non-Brazilian investors with full compensation for any claim arising out of or related to our obligations under the Natura &Co Holding ADSs.

 

As a foreign private issuer, we have different disclosure and other requirements than U.S. domestic registrants.

 

As a foreign private issuer under the Exchange Act, we may be subject to different disclosure and other requirements than U.S. domestic registrants. For example, as a foreign private issuer, in the United States, we are not subject to the same disclosure requirements as a U.S. domestic registrant under the Exchange Act, including the requirements to prepare and issue quarterly reports on Form 10-Q or to file current reports on Form 8-K upon the occurrence of specified significant events, the proxy rules applicable to U.S. domestic registrants under Section 14 of the Exchange Act or the insider reporting and short-swing profit rules applicable to U.S. domestic registrants under Section 16 of the Exchange Act. In addition, we rely on exemptions from certain U.S. rules which will permit us to follow Brazilian legal requirements rather than certain of the requirements that are applicable to U.S. domestic registrants.

 

Furthermore, foreign private issuers are required to file their annual report on Form 20-F within 120 days following the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days following the end of each fiscal year. As a result of the above, even though, following the declaration of effectiveness of the registration to which this joint proxy statement/prospectus is attached, we will be required to make submissions on Form 6-K disclosing the information that we have made or are required to make public pursuant to Brazilian law, or are required to distribute to shareholders generally, and that is material to us, you may not receive information of the same type or amount that is required to be disclosed to shareholders of a U.S. company.

 

Risks Relating to Tax Matters

 

If the Transaction does not qualify as a transaction described in Section 351(a) of the Code or is otherwise taxable to U.S. holders of Avon Common Shares, including under Section 367 of the Code, then such holders may be required to pay substantial U.S. federal income taxes.

 

The obligation of Avon, Natura &Co Holding, Natura Cosméticos, Merger Sub I and Merger Sub II to complete the Transaction is not conditioned on the receipt of an opinion from counsel to the effect that the Transaction should qualify for the Intended U.S. Tax Treatment. While the Transaction is expected to qualify for the Intended U.S. Tax Treatment, there are factual uncertainties concerning this treatment and the IRS could challenge the Intended U.S. Tax Treatment.

 

In particular, Section 367(a) of the Code and the applicable U.S. Treasury Regulations promulgated thereunder provide that when a U.S. shareholder exchanges stock in a U.S. corporation for stock in a non-U.S. corporation in a transaction that would otherwise qualify as a transaction under Section 351(a) of the Code, the U.S. shareholder is required to recognize gain, but not loss, realized on such exchange unless certain requirements are met, including that the fair market value of the foreign acquiring corporation equal or exceed that of the domestic target corporation at the time of the transaction. The determination of fair market value for this purpose is complex and, with respect to the Transaction, subject to factual uncertainties, including taking into account several factors other than the Estimated Ownership Ratio. No assurance can be given that the IRS will not challenge the Intended U.S. Tax Treatment or that a court would not sustain such a challenge. See “Material Tax Considerations—Material United States Federal Income Tax Considerations—The Transaction—U.S. Holders—Taxation Under Section 367(a).” If on the Closing Date the fair market value of Avon were found to exceed that of Natura &Co Holding for

 

 69

purposes of Section 367(a), or other requirements under Section 367(a) of the Code are not met, a U.S. holder of Avon Common Shares would recognize gain (but not loss) based on the amount such U.S. holder realizes in the Transaction, calculated separately for each block of Avon Common Shares.

 

If Section 7874 of the Code were to apply to the Transaction, Avon may be required to pay substantial U.S. federal income taxes going forward.

 

Section 7874 of the Code would apply to Natura &Co Holding if, after the Transaction, (i) at least 60% of the Natura &Co Holding Shares or Natura &Co Holding ADSs (by vote or value) are considered to be held by former holders of Avon Common Shares by reason of holding Avon Common Shares, as calculated for Section 7874 purposes, and (ii) the expanded affiliated group that includes Natura &Co Holding does not have substantial business activities in Brazil. (The percentage (by vote and value) of Natura &Co Holding Shares or Natura &Co Holding ADSs considered to be held by former Avon Shareholders immediately after the Transaction by reason of holding Avon Common Shares is referred to in this disclosure as the “Section 7874 Percentage.”) Determining the Section 7874 Percentage is complex and, with respect to the Transaction, subject to factual uncertainties, including taking into account several factors other than the Estimated Ownership Ratio. While we anticipate the Section 7874 Percentage will be less than 60%, and therefore that Section 7874 is not expected to apply to the Transaction, this conclusion is subject to those uncertainties and the IRS could assert that the Section 7874 Percentage is greater than or equal to 60%.

 

If the Section 7874 Percentage were determined to be at least 60%, several limitations could apply to Natura &Co Holding. For example, Avon would be prohibited from using its net operating losses, foreign tax credits or other tax attributes to offset the income or gain recognized by reason of the transfer of property to a foreign related person during the 10-year period following the Transaction or any income received or accrued during such period by reason of a license of any property by the U.S. corporation to a foreign related person. Moreover, Section 4985 of the Code and the rules related thereto would impose an excise tax on the value of certain Avon stock compensation held directly or indirectly by certain “disqualified individuals” (including officers and directors of Avon) at a rate equal to 20%, but only if gain is otherwise recognized by Avon shareholders as a result of the application of Section 7874 to the Transaction.

 

As discussed above, while we anticipate the Section 7874 Percentage will be less than 60%, and therefore that Section 7874 is not expected to apply to the Transaction, if the Section 7874 Percentage were determined to be at least 80%, Natura &Co Holding would be treated for U.S. federal income tax purposes as a U.S. domestic corporation (i.e., as a U.S. tax resident). If the IRS were to successfully challenge Natura &Co Holding’s status as a foreign corporation, significant adverse tax consequences would result for Natura &Co Holding and the combined group. Natura &Co Holding is not currently expected to be treated as a domestic corporation, but it is possible that changes in U.S. federal income tax law or changes in the facts and circumstances of the transactions contemplated in the Merger Agreement could alter that result.

 

The Transaction is expected to result in an ownership change for Avon under Section 382 of the Code, limiting Avon’s ability to utilize its foreign tax and other U.S. credits to offset the future taxable income of the combined company.

 

As of December 31, 2018, Avon had approximately U.S.$833 million of foreign tax and other credits available to offset future income for U.S. federal tax purposes. Avon’s ability to utilize such credits to offset future income could be limited, however, if Avon undergoes an “ownership change” within the meaning of Section 382 of the Code. In general, an ownership change will occur if there is a cumulative increase in ownership of Avon stock by 5% shareholders (as defined in the Code) that exceeds 50 percentage points over the lowest percentage of stock owned by such shareholders at any time over a rolling three-year period. If the 50 percentage points are exceeded, Section 382 establishes an annual limitation on the amount of deferred tax assets attributable to previously incurred credits that may be used to offset taxable income in future years. A number of complex rules apply in calculating this limitation, and any such limitation would depend in part on the market value of Avon at the time of the ownership change and prevailing interest rates at the time of calculation. An ownership change for Avon is expected to occur in the Transaction. Accordingly, all or a portion of Avon’s deferred tax assets may become subject to this limitation and as a result thereof, the combined company’s tax liability could increase and its future results of operations and cash flows could be adversely impacted.

 

 70

The effective tax rate that will apply to Natura &Co Holding is uncertain and may vary from expectations.

 

There can be no assurance that the Transaction will allow Natura &Co Holding to maintain any particular worldwide effective corporate tax rate. No assurances can be given as to what Natura &Co Holding’s effective tax rate will be after completion of the Transaction because of, among other things, uncertainty regarding the jurisdictions in which Natura &Co Holding will derive income and the amounts derived thereof and uncertainty regarding the tax policies of the jurisdictions in which it operates. Natura &Co Holding’s actual effective tax rate may vary from Natura Cosméticos’s and Avon’s expectations and that variance may be material. Additionally, tax laws or their implementation and applicable tax authority practices could change in the future.

 

Natura &Co Holding and its subsidiaries will be subject to tax laws of numerous jurisdictions, and the interpretation of those laws is subject to challenge by the relevant governmental authorities.

 

Natura &Co Holding and its subsidiaries will be subject to tax laws and regulations in Brazil, the United States and the numerous other jurisdictions in which Natura &Co Holding and its subsidiaries operate. These laws and regulations are inherently complex, and Natura &Co Holding and its subsidiaries will be obligated to make judgments and interpretations about the application of these laws and regulations to Natura &Co Holding and its subsidiaries and their operations and businesses. The interpretation and application of these laws and regulations could be challenged by the relevant governmental authorities, which could result in administrative or judicial procedures, actions or sanctions, which could be material.

 

Changes in taxes and other assessments may adversely affect us.

 

The legislatures and tax authorities in the tax jurisdictions in which Natura &Co Holding and its subsidiaries operate regularly enact reforms to the tax and other assessment regimes to which we, our independent beauty consultants and our customers are subject. Such reforms include changes in tax rates and, occasionally, enactment of temporary taxes, the proceeds of which are earmarked for designated governmental purposes. In addition, the interpretation of tax laws by courts and taxation authorities is constantly evolving. The effects of these changes and any other changes that result from enactment of additional tax reforms or changes to the manner in which current tax laws are applied cannot be quantified and there can be no assurance that any such reforms or changes would not have an adverse effect upon Natura &Co Holding’s business directly or indirectly (e.g., by affecting the business of our independent beauty consultants).

 

For example, Latin American governments have often increased taxes or changed tax legislation as a response to macroeconomic crises or other developments affecting their respective jurisdictions.

 

In Brazil, particularly, the tax system is highly complex and the interpretation of the tax laws and regulations is commonly controversial. The Brazilian government regularly implements changes to tax regimes that may increase the tax burden on Natura &Co Holding, its subsidiaries and jointly controlled entities and their respective customers. These changes include modifications in the rate of assessments and the enactment of new or temporary taxes, the proceeds of which are earmarked for designated governmental purposes. Future changes in tax policy laws may adversely affect Natura &Co Holding’s financial and operating results.

 

Risks Related to Avon’s Business

 

You should read and consider the risk factors specific to Avon’s business that will also affect the combined company after the Transaction. These risks are described in Item 1A of the Avon 2018 Form 10-K, as such risks may be updated or supplemented in Avon’s subsequently filed quarterly reports on Form 10-Q or current reports on Form 8-K, which are incorporated by reference into this joint proxy statement/prospectus. See the sections of this joint proxy statement/prospectus entitled “Incorporation of Certain Documents by Reference” and “Where You Can Find More Information” joint proxy statement/prospectus.

 

 71

Comparative Per Share Market Data

 

The table below sets forth, for the periods indicated, the reported high and low closing sale prices in nominal reais for each common share for Natura Cosméticos and for each common share for Avon on the B3 and the NYSE, respectively, in each case not considering share prices adjusted by dividends. See “Exchange Rates” for information with respect to exchange rates applicable during the periods set forth below:

 

 

Natura Cosméticos (B3) 

Avon (NYSE) 

 

Reais per Common Share 

U.S. Dollars per Common Share(1) 

U.S. Dollars per Common Share 

 

High 

Low 

High 

Low 

High 

Low 

2014            
Annual 42.64 30.16 11.00 7.78 17.09 9.11
2015            
Annual 33.42 18.79 8.62 4.85 9.31 2.50
2016            
Annual 33.71 21.30 8.70 5.50 6.89 2.38
2017            
First Quarter 29.01 22.47 7.49 5.80 5.93 4.21
Second Quarter 35.45 25.70 9.15 6.63 4.85 3.35
Third Quarter 34.92 22.59 9.01 5.83 3.75 2.33
Fourth Quarter 33.06 27.95 8.53 7.21 2.40 1.87
Annual 35.45 22.47 9.15 5.80 5.93 1.87
2018            
First Quarter 37.10 30.92 9.57 7.98 2.93 2.11
Second Quarter 37.79 29.60 9.75 7.64 2.92 1.48
Third Quarter 31.26 26.05 8.07 6.72 2.44 1.42
Fourth Quarter 45.00 27.54 11.61 7.11 2.18 1.43
Annual 45.00 26.05 11.61 6.72 2.93 1.42
Most recent six months:            
January 2019 48.60 43.29 12.54 11.17 2.34 1.57
February 2019 49.87 44.76 12.87 11.55 3.21 2.37
March 2019 49.15 40.10 12.68 10.35 3.29 2.66
April 2019 52.35 43.85 13.51 11.32 3.22 2.60
May 2019 61.50 49.99 15.87 12.90 3.86 2.82
June 2019 59.70 55.83 15.41 14.41 4.03 3.62
July 2019 (through to July 18, 2019) 58.50 55.09 15.10 14.22 4.10 3.88

 

 

(1)Solely for the convenience of the reader, we have translated certain amounts included in this joint proxy statement/prospectus from reais into U.S. dollars using the exchange rate as reported by the Brazilian Central Bank as of December 31, 2018 for reais into U.S. dollars of R$3.875 per U.S.$1.00. The U.S. dollar equivalent information presented in this joint proxy statement/prospectus is provided solely for the convenience of investors and should not be construed as implying that the amounts in reais represent, or could have been or could be converted into, U.S. dollars at such rates or any other rate. See “Exchange Rates.”

 

The following table presents the closing price per each Natura Cosméticos Share and per each Avon Common Share on the B3 and the NYSE, respectively on (a) May 21, 2019, the last trading day prior to the date of public

 

 72

announcement by Natura Cosméticos and Avon of the entry into the Merger Agreement, and (b)          , 2019, the last practicable trading day prior to the mailing of this joint proxy statement/prospectus.

 

Date 

Natura Cosméticos Share Closing Price (B3) 

Avon Share Closing
Price (NYSE) 

Implied per share value of Merger Consideration 

  In reais In U.S.$(1)  In U.S.$ In U.S.$
May 21, 2019 56.20 14.50 3.20 4.35
         , 2019        

 

 

(1)Solely for the convenience of the reader, we have translated certain amounts included in this joint proxy statement/prospectus from reais into U.S. dollars using the exchange rate as reported by the Brazilian Central Bank as of December 31, 2018 for reais into U.S. dollars of R$3.875 per U.S.$1.00. The U.S. dollar equivalent information presented in this joint proxy statement/prospectus is provided solely for the convenience of investors and should not be construed as implying that the amounts in reais represent, or could have been or could be converted into, U.S. dollars at such rates or any other rate. See the section of this joint proxy statement/prospectus entitled “Exchange Rates.”

 

 

 73

Selected Unaudited Pro Forma Per Share Data

 

The following table sets forth certain historical unaudited pro forma information with respect to net book value per share as of December 31, 2018 and earnings per share and dividends declared per share for the for the year ended December 31, 2018 for Natura &Co and Avon.

 

The historical information for Natura &Co has been prepared under IFRS and the historical information for Avon has been prepared under U.S. GAAP.

 

The information that follows should be read in conjunction with the unaudited pro forma condensed financial information and notes thereto, included elsewhere in this joint proxy statement/prospectus, and the audited consolidated financial statements for the year ended December 31, 2018 of Natura &Co, included elsewhere in this joint proxy statement/prospectus and the historical audited consolidated financial statements of Avon for the fiscal year ended December 31, 2018, appearing in Avon’s 2018 Form 10-K incorporated by reference to this joint proxy statement/prospectus.

 

The pro forma per share data have been included for comparative purposes only and does not purport to represent what the actual consolidated results of operations or the consolidated financial position of Natura &Co Holding would have been if the proposed Transaction had occurred on the dates assumed, nor is it necessarily indicative of future consolidated results of operations or consolidated financial position.

 

      Pro forma  Equivalent
Pro forma (4)
  

Historical 

Natura &Co
(In reais) 

 

Avon (As adjusted) (3)

(In reais) 

 

Natura &Co Holding 

(In reais)

 

Avon

(In reais) 

As of December 31, 2018            
Net book value per share(1)    5.97    (7.92)   17.18    5.15 
                     
For the year ended December 31, 2018                    
Dividends declared per share(2)    0.35    -    0.27    0.08 
                     
Net income (Loss) per share attributable to Natura &Co and Avon, and Pro Forma  — basic(2)   1.2735    (0.3875)   0.2084    0.0625 
Net income (loss) per share attributable to Natura &Co and Avon, and Pro Forma — diluted(2)    1.2713    (0.3875)   0.2084    0.0624

 

 

_______________________                    
(1)   Net book value per share information was calculated using the total number of shares outstanding and pro forma combined total number of shares outstanding as of December 31, 2018.
     
(2)   Historical dividends declared per share and earnings per share information were based on historical information available elsewhere in this prospectus. Pro forma dividends declared per share and pro forma earnings per share were calculated using the pro forma combined weighted-average number of shares outstanding for the period.
     
(3)   Data per share of Avon have been translated to Brazilian reais using the exchange rate as of December 31, 2018 of R$3.875 per U.S.$1.00
     
(4)   The implied equivalent value per share of Avon is calculated by multiplying the pro forma income (loss) per share, pro forma book value per share, and the pro forma dividends per share of the registrant by the Exchange Ratio of 0.300.

 74

Comparative Historical and Unaudited Pro Forma Per Share Data

 

Set forth below are earnings, cash dividends and book value per share data for:

 

·Natura Cosméticos on a historical basis, prepared under IFRS and presented in reais, as of and for the years ended December 31, 2018, 2017, 2016, 2015 and 2014.

 

·Avon on a historical basis, prepared under U.S. GAAP and presented in U.S. dollars, as of and for the years ended December 31, 2018, 2017, 2016, 2015 and 2014.

 

·Pro forma share information as of and for the years ended December 31, 2018. The pro forma per share information shows the effect of the Transaction from the perspective of a Natura &Co Holding shareholder.

 

The following information should be read in conjunction with the sections of this joint proxy statement/prospectus entitled “Risk Factors,” “Operative and Financial Review,” and the annual consolidated financial statements included elsewhere or incorporated by reference into this joint proxy statement/prospectus. Historical results for any period are not necessarily indicative of results to be expected for any future period.

 

Natura Cosméticos Per Share Data

 

   As of and for the year ended December 31,
   2018  2017  2016  2015  2014
   (in reais)
Book value per share(1)    5.96    3.79    2.31    2.38    2.61 
Basic earnings per share    1.2735    1.5574    0.6895    1.1934    1.7064 
Diluted earnings per share    1.2713    1.5551    0.6875    1.1928    1.7057 
Cash dividends per share(2)    0.3515    0.4672    0.2523    0.8180    1.6319 

 

 

(1)Book value per share is computed by dividing total equity attributable to the owners of Natura Cosméticos by the number of historical shares outstanding as of the end of the applicable period.

 

(2)Cash Dividends per share data is calculated by dividing total dividends (includes dividends and interest on equity) paid by us by the total historical number of shares outstanding as of the end of the applicable period.

 

Avon Per Share Data

 

   As of and for the year ended December 31,
   2018  2017  2016  2015  2014
   (in U.S. dollars)
Book value per share(1)    (2.04)   (1.65)   (1.94)   (2.46)   0.67 
Basic earnings per share(2)    (0.10)   (0.00)   (0.25)   (1.81)   (0.79)
Diluted earnings per share(2)    (0.10)   (0.00)   (0.25)   (1.81)   (0.79)
Cash dividends per share(3)    0.00    0.00    0.00    0.24    0.24 

 

 

(1)Book value per share is computed by dividing total equity attributable to the owners of Avon by the number of historical shares outstanding as of the end of the applicable period.

 

(2)       Represents basic and diluted earnings per share from continuing operations.

 

(3)Cash Dividends per share data is calculated by dividing total dividends paid by us by the total historical number of shares outstanding as of the end of the applicable period.

 

 75

Selected Financial Data of Natura &Co

 

The following tables set forth selected historical consolidated financial and other data of Natura &Co for the periods indicated and have been derived from the annual consolidated financial statements of Natura &Co as of and for each of the years in the five year period ended December 31, 2018.

 

The following information is presented in millions of Brazilian reais, unless otherwise specified, and is presented in accordance with the measurements and principles of IFRS.

 

The following information should be read in conjunction with the sections of this joint proxy statement/prospectus entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Natura &Co,” and “Unaudited Pro Forma Condensed Financial Information” and the annual consolidated financial statements included elsewhere in this joint proxy statement/prospectus. Historical results for any period are not necessarily indicative of results to be expected for any future period.

 

Natura &Co — Statement of Income

 

   Fiscal Year Ended December 31,
   2018(1)  2018  2017  2016  2015  2014
   (in millions of U.S.$)  (in millions of R$)
Net revenue    3,457    13,397    9,853    7,913    7,899    7,408 
Cost of products sold    (976)   (3,783)   (2,911)   (2,447)   (2,416)   (2,250)
Gross profit    2,481    9,615    6,942    5,466    5,483    5,158 
Selling, marketing and logistics expenses    (1,566)   (6,067)   (4,199)   (3,337)   (3,021)   (2,758)
Administrative, R&D, IT and project expenses    (581)   (2,251)   (1,536)   (1,101)   (1,272)   (1,056)
Other operating (expenses) income, net    (10)   (40)   152    54    66    20 
Operating profit before financial result    324    1,257    1,359    1,083    1,257    1,365 
Financial income    531    2,056    604    1,073    1,927    704 
Financial expenses    (681)   (2,640)   (992)   (1,729)   (2,309)   (972)
Profit before income tax and social contribution    174    673    971    427    875    1,096 
Income tax and social contribution    (32)   (125)   (301)   (119)   (353)   (355)
Net income    142    548    670    308    523    741 
Attributable to:                              
Controlling shareholders of the company    142    548    670    297    514    733 
Non-controlling shareholders                11    9    8 
    142    548    670    308    523    741 

 

(1)Solely for the convenience of the reader, we have translated certain amounts included in this joint proxy statement/prospectus from reais into U.S. dollars using the exchange rate as reported by the Brazilian Central Bank as of December 31, 2018 for reais into U.S. dollars of R$3.875 per U.S.$1.00. The U.S. dollar equivalent information presented in this joint proxy statement/prospectus is provided solely for the convenience of investors and should not be construed as implying that the amounts in reais represent, or could have been or could be converted into, U.S. dollars at such rates or any other rate. See “Exchange Rates.”

 

 76

Natura &Co — Balance Sheet

 

   As of December 31,
   2018(1)  2018  2017  2016  2015  2014
   (in millions of U.S.$)  (in millions of R$)
Assets                  
Cash and cash equivalents & short-term investments    627    2,430    3,670    2,299    2,784    1,696 
Trade receivables    437    1,692    1,508    1,052    909    847 
Inventories    352    1,365    1,244    836    964    890 
Other current assets    250    969    634    616    1,362    806 
Total current assets    1,666    6,456    7,056    4,803    6,019    4,239 
Other noncurrent assets    448    1,737    1,149    1,100    807    679 
Property, plant and equipment    577    2,237    2,277    1,735    1,752    1,672 
Intangible assets    1,278    4,951    4,476    784    816    609 
Total noncurrent assets    2,303    8,924    7,901    3,619    3,376    2,961 
Total assets    3,969    15,380    14,957    8,422    9,395    7,200 
Liabilities                              
Borrowings, financing and debentures    305    1,182    4,077    1,764    2,161    1,467 
Trade and other payables    448    1,737    1,554    815    803    600 
Other current liabilities    425    1,648    1,282    1,598    1,609    1,053 
Total current liabilities    1,179    4,567    6,912    4,177    4,573    3,119 
Borrowings, financing and debentures    1,873    7,259    5,255    2,626    3,374    2,515 
Other noncurrent liabilities    253    980    1,155    622    370    418 
Total noncurrent liabilities    2,126    8,239    6,411    3,248    3,744    2,932 
Total shareholders’ equity    664    2,574    1,635    996    1,078    1,149 
Total liabilities and shareholders’ equity    3,969    15,380    14,957    8,421    9,395    7,200 

 

 

(1)Solely for the convenience of the reader, we have translated certain amounts included in this joint proxy statement/prospectus from reais into U.S. dollars using the exchange rate as reported by the Brazilian Central Bank as of December 31, 2018 for reais into U.S. dollars of R$3.875 per U.S.$1.00. The U.S. dollar equivalent information presented in this joint proxy statement/prospectus is provided solely for the convenience of investors and should not be construed as implying that the amounts in reais represent, or could have been or could be converted into, U.S. dollars at such rates or any other rate. See “Exchange Rates.”

 

 77

Selected Financial Data of Avon

 

The following tables set forth selected historical consolidated financial and other data of Avon for the periods indicated and have been derived from the annual consolidated financial statements of Avon as of and for each of the years in the five year period ended December 31, 2018.

 

The following information is presented in millions (except for per share data) of U.S. dollars, unless otherwise specified, and is presented in accordance with U.S. GAAP.

 

The following information should be read in conjunction with the sections of this joint proxy statement/prospectus entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Avon,” and “Unaudited Pro Forma Condensed Financial Information” and the consolidated financial statements and notes thereto in the Avon 2018 Form 10-K, which are incorporated by reference into this joint proxy statement/prospectus. Historical results for any period are not necessarily indicative of results to be expected for any future period.

 

   Fiscal Year Ended December 31,
  

2018 

 

2017 

 

2016 

 

2015 

 

2014 

   (in millions of U.S.$)
Statement of Operations Data               
Total revenue    5,571.3    5,715.6    5,717.7    6,160.5    7,648.0 
Operating profit    235.2    281.3    323.8    165.0    434.3 
(Loss) income from continuing operations, net of tax    (21.8)   20.0    (93.4)   (796.5)   (344.5)
Diluted (loss) earnings per share from continuing operations    (0.10)   0.00    (0.25)   (1.81)   (0.79)
Cash dividends per share    0.00    0.00    0.00    0.24    0.24 
Balance Sheet Data                         
Total assets*    3,010.0    3,697.9    3,418.9    3,770.4    5,485.2 
Debt maturing within one year    12.0    25.7    18.1    55.2    121.7 
Long-term debt    1,581.6    1,872.2    1,875.8    2,150.5    2,417.1 
Total debt    1,593.6    1,897.9    1,893.9    2,205.7    2,538.8 
Total shareholders’ (deficit) equity    (896.8)   (714.7)   (836.2)   (1,056.4)   305.3 

 

*Total assets at December 31, 2015 and 2014 in the table above exclude the U.S.$100.0 receivable from continuing operations that was presented within current assets of discontinued operations.

 

 

 78

 

Unaudited Pro Forma Condensed Financial Information

 

The following unaudited pro forma condensed financial information give effect to the Transaction to be accounted for under the acquisition method of accounting and in which Natura &Co is treated as the acquirer for financial reporting purposes. See the section of this joint proxy statement/prospectus entitled “The Transaction”.

 

The unaudited pro forma condensed balance sheet as of December 31, 2018 is based on the individual historical consolidated balance sheets of Natura &Co appearing in the section entitled “Selected Historical Financial Date for Natura &Co” in this joint proxy statement/prospectus and Avon appearing in Avon’s 2018 Form 10-K incorporated by reference in this joint proxy statement/prospectus, and gives effect on a pro forma basis to the Transaction as if it had been consummated on December 31, 2018. The unaudited pro forma condensed statements of income for the year ended December 31, 2018 is based on the individual historical consolidated statements of income of Natura &Co, appearing elsewhere in this joint proxy statement/prospectus, and Avon appearing in Avon’s 2018 Form 10-K incorporated by reference in this joint proxy statement/prospectus, and combine the results of operations of Natura &Co and Avon giving effect to the Transaction as if it had occurred on January 1, 2018. The historical consolidated financial information has been adjusted to give effect to the events that are directly attributable to the Transaction, factually supportable, and, with respect to the pro forma statements of income, expected to have a continuing impact on the pro forma results.

 

The unaudited pro forma condensed financial information, as above, has been presented for informational purposes only. The unaudited pro forma condensed financial information does not purport to represent what the actual consolidated results of operations or the consolidated financial position of Natura & Co Holding would have been if the proposed Transaction had occurred on the dates assumed, nor is it necessarily indicative of future consolidated results of operations or consolidated financial position.

 

The unaudited pro forma condensed financial information should be read in conjunction with the following:

 

·accompanying notes to the unaudited pro forma condensed financial information;

 

·historical audited consolidated financial statements of Natura &Co for the fiscal year ended December 31, 2018, included in this joint proxy statement/prospectus; and

 

·historical audited consolidated financial statements of Avon for the fiscal year ended December 31, 2018, appearing in Avon’s 2018 Form 10-K incorporated by reference to this joint proxy statement/prospectus.

 

The unaudited pro forma condensed financial information has been prepared using the acquisition method of accounting under IFRS. Natura &Co has been treated as the acquirer in the Transaction for accounting purposes. The acquisition accounting is dependent upon certain valuations and other studies that have yet to progress to a stage where there is sufficient information for a definitive measurement. The actual results of these studies may depend in part on prevailing market information and conditions. Accordingly, the pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed financial information. Differences between these preliminary estimates and the final acquisition accounting may occur and these differences may have a material impact on the accompanying unaudited pro forma condensed financial information and the company’s future results of operations and financial position.

 

 79

Unaudited Pro Forma Condensed Statement of Balance Sheet
as of December 31, 2018

 

         Pro-forma adjustments      
   Natura &Co Historical  Avon as adjusted
(Note 2)
  Reclassifi-cation (Note 3.1)  IFRS and accounting policies  
(Note 3.2)
  Purchase accounting and financing adjustments  Note 3.5  Total
Pro-forma
   (In millions of reais)     (In millions of reais )
ASSETS                        
CURRENT ASSETS                        
Cash and cash equivalents    1,215    2,064                     3,279    846 
Short-term investments    1,215                          1,215    314 
Trade receivables    1,692    1,355                     3,047    786 
Inventories    1,365    2,100            19    a)    3,484    899 
Recoverable taxes    379                         379    98 
Income tax and social contribution    327        125                 452    117 
Derivative financial instruments            8                 8    2 
Other current assets    263    1,054    (133)                1,184    306 
Held for sale assets        254            78    b)    332    86 
Total Current Assets    6,456    6,827            97         13,380    3,454 
NON-CURRENT ASSETS                                        
Recoverable taxes    369        3                 372    96 
Deferred income tax and social contribution    398        824                 1,222    315 
Judicial deposits    333                         333    86 
Derivative financial instruments    584                         584    151 
Other non-current assets    52    2,337    (1,174)                1,215    313 
Investment in associates                     97    c)    97    25 
Property, plant and equipment    2,237    2,161            368    d)    4,766    1,230 
Intangible assets    3,504        347        4,310    e)    8,161    2,106 
Goodwill    1,447    339            7,941    f)    9,727    2,510 
Total Non-Current Assets    8,924    4,837            12,716         26,477    6,832 
TOTAL ASSETS    15,380    11,664            12,813         39,857    10,286 
LIABILITIES AND SHAREHOLDERS’ EQUITY                                        
CURRENT LIABILITIES                                        
Borrowings, financing and debentures    1,182    46        1,907    (1,907)   g)    1,228    317 
Trade payables and reverse factoring    1,737    3,164    (25)       600    h)    5,476    1,413 
Payroll, profit sharing and social security charges    574    331                     905    234 
Tax liabilities    310    403                     713    184 
Income tax and social contribution    183    62                     245    63 
Dividends and interest on equity payable    154                         154    40 
Derivative financial instruments    69        25                 94    24 
Provision for tax, civil and labor risks    20                         20    5 
Other current liabilities    338    1,749                     2,087    539 
Held for sale liabilities        44                     44    11 
Total Current liabilities    4,567    5,799        1,907    (1,307)        10,966    2,830 
NON-CURRENT LIABILITIES                                        
Borrowings, financing and debentures    7,259    6,128            1,585    i)    14,972    3,864 
Tax liabilities    165    528    (491)                202    52 
Deferred income tax and social contribution    432        76        902    j)    1,410    364 
Provision for tax, civil and labor risks    241        415        1,046    k)    1,702    439 
Employee benefit plans                                  
Other non-current liabilities    142    777                     919    237 
Total non-current liabilities    8,239    7,433            3,533         19,205    4,956 
Series C convertible preferred stock        1,907        (1,907)                 

 

 80

 

         Pro-forma adjustments      
   Natura &Co Historical  Avon as adjusted
(Note 2)
  Reclassifi-cation (Note 3.1)  IFRS and accounting policies  
(Note 3.2)
  Purchase accounting and financing adjustments  Note 3.5  Total
Pro-forma
   (In millions of reais)     (In millions of reais )
SHAREHOLDERS’ EQUITY                                        
Total shareholders’ equity    2,574    (3,475)           10,587