Revlon Board Accepts $1.8-Billion Buy-Out by Forstmann, Little
Revlon on Thursday rebuffed Pantry Pride’s attempted hostile takeover and agreed to be taken private in a $1.8-billion leveraged buy-out by Forstmann, Little & Co. As part of the deal, Revlon’s cosmetic business will be sold off, leaving the buy-out team with its relatively new health-care business.
Forstmann, Little, a New York investment banking firm that specializes in leveraged buy-outs, will pay $56 per share in cash for each of Revlon’s shares, the two companies said in a joint announcement. Pantry Pride, a Fort Lauderdale, Fla.-based operator of supermarkets, drug stores and furniture and appliance outlets, had recently sweetened its hostile takeover bid to $53 per share.
On the New York Stock Exchange, Revlon stock fell 12.5 cents to close at $54.25 a share Thursday in trading that was interrupted for the announcement.
Management Participation
Revlon Chairman and Chief Executive Michel C. Bergerac called the leveraged buy-out “an outstanding transaction and obviously in the best interests of the company, its employees and our stockholders.”
Forstmann, Little will invest about $445 million of its own capital in the buy-out, with the balance of the price coming from bank loans that already have been arranged. Revlon senior management will be offered equity participation in the leveraged buy-out, which will involve the sale of some assets.
A leveraged buy-out is usually accomplished by a small group of investors, often including company management, who finance the acquisition by borrowing money against the company’s assets. The debt is then paid off by selling parts of the company or through the company’s internally generated funds.
While the stock purchase will cost Forstmann nearly $1.8 billion, the two firms placed the total value of the leveraged buy-out at $3 billion, based on the number of shares that Forstmann must buy plus debt to be assumed or refinanced in the transaction.
Health-Care Acquisitions
The transaction will greatly alter the complexion of Revlon, which started as a cosmetics company but in recent years spent millions of dollars to acquire health-care firms that make such products as contact lenses, drugs and blood analyzers. Last year’s $112 million in profits and $2.4 billion in sales were unchanged from the previous two years, but analysts said the health-care operations recently had begun to perform better.
“Revlon as we know it is going off the map,” said Robert Brown, an analyst who follows Revlon for Pemberton, Houston, Willoughby, western Canada’s largest brokerage house, based in Vancouver, British Columbia.
In the first stage of the deal, Revlon’s worldwide beauty products business will be sold for about $900 million to the New York-based Adler & Shaykin leveraged buy-out firm and members of the cosmetics operation’s management. That company, which will be headed by former Max Factor President Linda J. Wachner, will continue to sell Revlon products in 130 countries. The cosmetics unit contributed $1.1 billion to Revlon’s sales last year.
Then, Forstmann will sell Revlon’s Norcliff Thayer health-products unit--known for its Tums antacid tablets and its Oxy skin-care products--and the Reheis Chemical business to American Home Products for an undisclosed price.
What will remain is a privately held health-care company, which will be headed by Bergerac. That company’s name hasn’t been determined yet, a Revlon spokesman said.
Analyst Brown said: “This thing will do what the Pantry Pride deal was going to do--split the whole shooting match.” But under the leveraged buy-out, Bergerac will retain control of at least part of Revlon, whereas “if it had been Pantry Pride, it would have been, ‘Welcome to my conglomerate, you’re fired,’ ” he said.
A spokesman for Pantry Pride declined comment on the agreement between Revlon and Forstmann, Little. However, Pantry Pride’s $53-per-share offer, which was made Tuesday, has not been terminated, he said.
Stock Repurchase
In mid-August, Pantry Price offered to pay $47.50 per share for Revlon’s stock. It lowered its offer to $42 per share after Revlon retaliated by repurchasing 10 million of its shares with notes and preferred stock that have a face value of $57.50 per share.
Revlon has 28.5 million shares of common stock outstanding, plus 1.4 million shares issuable upon the exercise of outstanding options. In addition, Revlon’s outstanding $9 preferred stock is convertible into 1.7 million Revlon common shares.
Revlon’s board unanimously approved the definitive agreement at a special meeting Thursday. Revlon said its board also had been considering the higher Pantry Pride offer, a possible liquidation and interest in an acquisition expressed Tuesday by an unidentified corporation.
The proposed acquisition by Forstmann, Little will be submitted to shareholders at a special meeting in late November.
Analysts had estimated that the buy-out group might offer between $53 and $60 per share. The $56 price “is right in the ballpark,” said Stanley Fishman, an analyst with Fahnestock & Co. in New York.
