Pantry Pride Expects to Sell Health-Care Units of Revlon if Bid Wins

If it succeeds in its unfriendly takeover of Revlon, Pantry Pride expects to sell off the target’s health-care subsidiaries, cut costs in its beauty-products units and possibly sell off the beauty-products units’ international operations, Pantry Pride disclosed Friday.

In the prospectus that begins its $1.9-billion tender offer for Revlon shares, Pantry Pride predicts that it might be able to sell off the health-care units for $1.675 billion to $1.9 billion. The prospectus, filed late Friday with the Securities and Exchange Commission, says the retailer has already contacted several companies about their purchasing pieces of Revlon and has been told “on a preliminary basis that they would be interested” in such acquisitions.

The prospectus thus gives the first official notice that Pantry Pride tentatively plans to sell off the health-care units, which include companies that make contact lenses, patent and prescription medicines and blood-analysis equipment. Analysts say the units have the promise of being quite profitable and are structured in a way that would make them easy to sell off.

Financing Not Disclosed

Since launching the attempted takeover last Monday, Pantry Pride, which is controlled by closely held MacAndrews & Forbes Holdings, has not spelled out how it plans to finance its purchase of Revlon shares. However, a sell-off of the health-care units has been widely speculated.

Indeed, in a letter sent Friday from Ronald O. Perelman, Pantry Pride’s controlling shareholder, to Revlon Chairman Michel C. Bergerac, Perelman rejected Bergerac’s characterization of the attempted acquisition as a “junk-bond, bust-up” takeover.

“Nothing could be further from the truth,” he wrote. “Our operating history at MacAndrews & Forbes shows that we have developed all our businesses beyond their acquisition levels. . . . We are not wedded to any one position and are anxious to hear your views on the retention of additional businesses.”

In a “junk-bond, bust-up” takeover, an acquiring company floats low-grade, high-yield bonds to raise funds to purchase the company’s stock, then pays for the bonds by selling assets of the target company. The prospectus says Pantry Pride intends to raise $900 million through the sale of such bonds, and it also has available $750 million in cash and marketable securities and a $500-million bank commitment.

The prospectus offers $47.50 for common shares of Revlon and $26.67 for the company’s preferred shares. Revlon common closed in trading Friday at $46.25, down 62.5 cents.

Retains Investment Banker

The sell-off value of the health-care units is far larger than their book value, which the prospectus suggests is about $1.48 billion. The document says Pantry could gain further cash to finance its deal by using the surplus assets of Revlon’s pension plan, which it says amount to about $88 million.

Pantry Pride says it has already engaged Morgan Stanley & Co., a New York investment bank, to help it sell the health-care properties.

Health-care products account for 55% of Revlon’s $2.4 billion in revenue, while the international division of the beauty-products group accounts for about 13%.

Filing of the prospectus came a day after Pantry Pride sued Revlon in Delaware state court to invalidate a recently adopted “poison pill” measure that would make the takeover far more expensive. The “poison pill” would consist of a special dividend to be issued by Revlon as soon as it had bought back 20% of its stock as part of its defense. The 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.