Makeover at Revlon Taking Hold : Reversal of 4-Year Decline Attracts Suitor in Pantry Pride
It wasn’t long ago that beauty-products maker Revlon seemed to be aging in a most unbecoming way.
At the cosmetics counter, the $2.4-billion company was being outmaneuvered by the likes of Maybelline, Cover Girl and Estee Lauder. The company was spending millions to acquire health-care concerns that made contact lenses, drugs and blood analyzers, but those purchases drained resources while contributing little to the bottom line.
Now, however, as Revlon girds to resist a $1.9-billion takeover bid by Pantry Pride, some analysts believe that the target company’s fortunes are on an upswing from the four-year decline. Some contend that Revlon would be attractive to Pantry Pride largely because of the expected near-term earnings--particularly in the health-care units that they believe could be profitably resold to other health-care companies.
“There’s sense in buying into a company after they’ve spent heavily on research and development but before the profits have fully bloomed,” said Jack Salzman, an analyst with Salomon Bros. in New York.
The takeover battle, which began Monday with Pantry Pride’s tender offer, continued to unfold Tuesday. In a lawsuit filed in Manhattan, Pantry Pride asked a federal judge to declare unconstitutional a New York state law that the company said may bar it from buying shares in connection with the offer.
The Florida-based retailer alleged that the law subjects it to stringent filing requirements and “unnecessary and unreasonable delay” that would prevent it from consummating its offer. In its court papers, the company also asked that the court block Revlon from any countersuit.
‘Poison Pill’ Tactic
On Monday, Revlon said it would defend itself against the $47.50-a-share offer by buying back up to 5 million shares of stock and issuing a special “poison pill” dividend as soon as the company accumulates 20% of its stock. The special dividend would be in the form of a note-purchase right on each outstanding share of common stock, enabling a shareholder to exchange one share for a one-year note from Revlon promising to pay $65 and 12% interest.
Meanwhile, Revlon’s stock rose 37.5 cents a share to $46 on the New York Stock Exchange, with 3.6 million shares traded. Pantry Pride stock closed at $7.25, down 25 cents, on trading of 96,600 shares.
The turnaround at Revlon, the world’s largest beauty-products maker, comes after years of listless earnings from the one-time Wall Street favorite. After peaking in 1980 at $192 million on $2.2 billion in sales, the company’s earnings plummeted. Last year’s profits of $112 million were flat from the two preceding years.
The problems were many. The company’s researchers, who had turned out hit products for so many years, were suddenly unable to duplicate such successes as the Charlie fragrance and Flex, the company’s best-selling shampoo.
Retailers began to resist Revlon’s efforts to have them stock large selections of their cosmetics, fragrances and toiletries.
“Revlon made all sorts of variations, but retailers would stock only some of them, and often the wrong ones,” said Mary Ann Winter, an analyst with Brown Bros., Harriman in New York. “You’d look for a product in basic red, and they’d only have fuchsia.”
In supermarkets and drugstores, the company’s prices were undercut by such rivals as Maybelline and Cover Girl, she said.
Moreover, the company realized too late that it had to adjust its marketing plans to the aging of the baby-boom generation. For years, growth in the population of teen-age girls had meant steady growth in sales for cosmetics companies.
The company’s overall market share in the beauty-products dipped from about 20% in 1980 to 16% in 1981, analysts estimate.
Many traced the decline of Revlon’s glory to Michel C. Bergerac, who was lured from his post as head of ITT’s European operations to succeed Charles Revson, the company’s hard-charging founder, as Revlon’s chairman and chief executive. Some said the French-born Bergerac diverted precious resources and management attention when Revlon began spending its cash to acquire health-products companies.
Perhaps the most controversial purchase was its 1980 acquisition of Technicon, a maker of blood analyzers, for which it paid $60 million. In the five years before the acquisition, Technicon’s profits were growing 8% a year, slower than Revlon’s own rate.
Last year, company officials hailed what they said would be the beginning of a turnaround, and, indeed, performances by some of the health units appear to be vindicating Bergerac.
The company’s proprietary bifocal contact lens has been well received, and some analysts are predicting profit growth of 15% for the eye-care unit as a whole.
Technicon’s high-price blood analyzers have been hurt by cutbacks in federal health spending, but some industry observers expect a revival in sales with this year’s unveiling of three new blood testers.
National Health Laboratories, which processes diagnostic tests for physicians in 13 U.S. laboratories, is one of the most profitable of such operations, Salomon Bros.’ Salzman says.
In his view, only the company’s prescription-drug operations are weak. Salzman said the unit’s profits have suffered since other manufacturers began producing generic versions of its Hygroton drug to combat hypertension.
Health-care products already account for 55% of revenue but 70% of profits.
A new offensive in the company’s cosmetics business may also pay off. Charlie, once the world’s biggest-selling fragrance, has not succeeded in making a comeback. But a fragrance called Fleurs de Jontue has been getting good reviews, as has an eye-shadow product called Custom Eyes, Salzman says. He estimates that Revlon’s overall market share in beauty products has edged past 18%.
