Revlon Begins Quest to Buy Back Stock
Revlon formally began its offer Thursday to buy back 26% of its own stock and disclosed details of the refinancing intended to burden the company with debt and thus repel the takeover bid of financier Ronald Perelman’s Pantry Pride.
In a prospectus outlining a note swap that may be worth as much as $575 million, Revlon also offered its version of the encounters between Perelman and Revlon Chairman Michel C. Bergerec that preceded Pantry Pride’s unfriendly offer.
In this recounting, Bergerac and Perelman met last June, but Bergerac gave no encouragement to Perelman’s offer to buy the company at a per-share price in the low $40s. Bergerac said that the company was not for sale and that the offer was for far less than the company was worth, the prospectus says.
Raise Debt to $942 Million
According to Pantry Pride’s version, as outlined in the prospectus for its $47.50-a-share tender offer, Bergerac was initially receptive to Perelman’s inquiry and said a deal might be struck for a per-share price in the $50 range.
Revlon, a cosmetics and health-care products maker, said the buy-back offer and its intended sale of $250 million in assets will swell the company’s debt to $942 million from its current $467 million. Equity, meanwhile, will drop to $560 million from $1 billion, as the purchase of up to 10 million Revlon shares reduces shareholders’ investment in the concern.
As reported, Revlon plans to buy back the stock with notes and preferred stock that together have a face value of $57.50 per share. Revlon said its financial adviser, the investment banking concern of Lazard Freres & Co., believes that the notes will trade at face value.
The prospectus notes that the refinancing is likely to cut Revlon’s debt rating. And, it says, the securities will be issued with covenants that will restrict the company’s future debt level and its ability to issue dividends or sell off assets.
The covenants are intended to discourage Pantry Pride, which plans to finance its takeover by issuing low-rated, high-yield bonds and paying them back by selling its health-products divisions.
Revlon’s prospectus says the company intends to sell off $250 million worth of assets within the next month to raise a net $160 million that the company plans to spend to cut debt. But, while the company said it has discussed such a sale with prospective purchasers, it has not identified which assets will be sold.
Analysts have speculated that the company may be planning to sell its pharmaceutical unit.
Revlon’s prospectus also forecasts that the intended sale of assets will increase the company’s 1985 earnings to $282 million on revenue of $2.4 billion, compared to the $112 million that it earned last year on revenue of $2.4 billion.
Revlon forecast that earnings for 1986 will then decline to $116 million on revenue of $2.5 billion.
Revlon’s stock closed Thursday at $44.375, up 12.5 cents. Last Friday, the company’s stock traded at a recent high of $46.875, but it has declined since Revlon announced that it would adopt a “poison pill” defensive measure that many analysts believe has made a takeover unlikely.
