Private equity investors led by Barington Capital have proposed a restructuring of Avon Products, saying the cosmetics maker is "significantly undervalued" and warning against the sale of its North American arm to Cerberus Capital Management.

The Barington-led group which includes NuOrion Partners AG laid out their plans in an open letter sent on Thursday to Avon Chairman Douglas Conant.

They said they had lost confidence in Avon's leadership, citing its rejection of a takeover offer by Coty Inc and a poor choice of CEO as the primary reasons for its poor share market performance.

"We believe it is critical that Avon promptly add new independent directors who are focused on improving long-term shareholder value, ensuring that shareholder interests are protected, and recruiting a new senior management team that is capable of executing a comprehensive strategy to improve Avon's performance," Barington said in its letter.

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The investor group, which collectively owns more than 3 percent of the company, also cautioned against any sale of Avon's North America business or a dilutive equity stake sale on unfavorable terms to shareholders.

On Thursday, Reuters reported that Avon was in negotiations to sell its North American arm to Cerberus Capital Management, a New York-based private equity firm.

In 2012, smaller rival Coty Inc offered to buy Avon for $10 billion, but the board rejected the bid as too low and "opportunistic".

News of the takeover offer sent Avon's stock soaring to a peak of $23.52 in 2012.

However, as of Dec. 2 the stock was $3.73, a loss of about $8.5 billion in market capitalization, the investor group said.