Legal/Regulatory June 13, 2013, S.E.C. Charges and Fines Revlon for Misleading Shareholders By PETER LATTMAN The billionaire takeover artist Ronald O. Perelman made his fortune doing big, messy deals that often ended up in nasty legal disputes. One of those messy deals — an attempt in 2009 to take Revlon private — ended up not only in court but also on the desks of federal regulators. On Thursday, the Securities and Exchange Commission announced that Revlon had agreed to pay an $850,000 penalty to settle accusations that it deceived shareholders and its independent directors in connection with the failed takeover. The relatively small fine adds to the roughly $37 million in settlements that the company has paid to shareholders to resolve several related private lawsuits. “Going-private transactions create opportunities for shareholder abuse and can have coercive effects on minority shareholders,” said Antonia Chion, an associate director in the S.E.C.’s division of enforcement. “By erecting informational barriers, Revlon kept critically important information from its board and, in turn, misled investors.” Colleen Mahoney, a lawyer for Revlon at Skadden, Arps, Slate, Meagher & Flom, did not respond to a request for comment. As part of the proceedings, Revlon has neither admitted nor denied wrongdoing. The penalty assessed against Revlon is the latest episode in Mr. Perelman’s eventful reign over the cosmetics company, which he gained control of in 1985 in one of the original hostile takeovers. Today, Mr. Perelman’s investment company, MacAndrews & Forbes, controls about three-quarters of Revlon’s shares, according to securities filings. In 2009, during the depths of the recession, Revlon was a troubled company. It had posted losses for several years, losing market share to competitors like L’Oreal, Estée Lauder and Procter & Gamble, and it suffered under a heavy debt load. Mr. Perelman tried to solve the company’s problems by buying out his minority shareholders and taking the company private. But those plans were thwarted when an independent financial adviser determined that the proposed deal was unfair to Revlon and the minority shareholders. So instead of taking Revlon private, Mr. Perelman sought to improve the company’s financial health by executing a so-called exchange offer, a transaction in which the company asked minority shareholders to swap their stock for preferred shares. As designed, the complex deal would have helped Revlon pay off a substantial loan that it owed to MacAndrews & Forbes. Again, because Mr. Perelman stood on both sides of the deal, there was a question about the transaction’s fairness. So Revlon asked its independent board members to assess the deal. Among Revlon’s minority shareholders were those invested in its stock through the company’s 401(k) retirement plan. The retirement plan’s trustee decided that its members could exchange their shares only if an outside investment banker decided that the transaction was adequate. After evaluating the proposed deal, a financial adviser determined that it was, like the going-private transaction, unfair — that the preferred shares being offered were not equal to the value of the common stock. Revlon, however, went to great lengths to hide that decision from the retirement plan members, the S.E.C. said. Among other deceitful maneuvers, it altered the agreement with the trustee to ensure that the trustee would not share the adviser’s opinion with Revlon shareholders. The company also misrepresented in securities filings that the board’s process was “full, fair and complete.” The S.E.C. order described Revlon’s conduct as “ring fencing,” or cordoning off vital information from minority shareholders that would have helped them decide whether to exchange their shares. As a result of Revlon’s misconduct, the agency said, the company’s board was unable to fairly evaluate the adequacy of the exchange offer. “In short, this result underscores that a controlling shareholder cannot play hide-the-ball when its wants to acquire the shares that it does not own,” said Frank Aquila, a corporate lawyer at Sullivan & Cromwell not involved in the case. Shares of Revlon have performed well recently, rising about 40 percent over the last year. In trading Thursday, the stock rose about 3.7 percent, to $20.64. The company, which has a market value of about $1 billion, disclosed the settlement in its quarterly earnings announcement in April. Though the penalty related to the Revlon takeover is a reputational hit to Mr. Perelman, last month he won a different case with similar issues in the Delaware Court of Chancery. That suit challenged his buyout of a company, M&F Worldwide, in which he held a large stake. The court dismissed the case despite complaints that the merger was unfair. Mr. Perelman, who is 70, made headlines last month when he announced a $100 million gift to Columbia Business School to create the Ronald O. Perelman Center for Business Innovation. Earlier in the year, he made a $25 million donation to his alma mater, the University of Pennsylvania.
Posted on: Fri, 14 Jun 2013 05:07:19 +0000
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