Top Managers at Revlon Drop Out of Buy-Out Plan
Revlon Inc.’s top management bowed out of an investment group that is trying to take the company private, saying it wanted “to avoid any possible question as to the propriety of the proposed transaction.”
Earlier, Revlon had agreed to be dismantled and bought out by Forstmann, Little & Co. and had provided bonuses totaling more than $80 million to its top executives to compensate them for the risk of a change of management in a takeover.
On Sunday, Forstmann, Little raised the stakes in the battle for control of Revlon, increasing its bid to $57.25 a share, or $1 more than the latest offer by its rival, Pantry Pride Inc.
Revlon’s board of directors, which earlier had supported a $56-a-share bid by Forstmann, Little, unanimously supported the revised $1.63-billion offer and granted Forstmann, Little options to buy two key Revlon businesses no matter which suitor succeeds in the takeover battle.
Pantry Pride, a Fort Lauderdale, Fla.-based operator of supermarkets and other retails stores that has been pursuing Revlon since August, declined comment.
As investors sorted out the latest twists in the complex takeover fight, Revlon’s stock nudged up 12.5 cents to $55.50 a share in Monday’s New York Stock Exchange trading.
Revlon, which disclosed the latest offer Sunday, said that, as a condition of the higher bid, it granted Forstmann, Little the option to buy its vision-care group and its National Health Laboratories for a total of $525 million should any other person or group acquire 40% of Revlon’s shares.
Such a move is known as a “lock-up option” because it allows a friendly suitor to acquire key elements of a business to discourage other bidders from trying to get control of the company.
In the proposed takeover, Revlon first would sell its beauty products business to another private investment firm, Adler & Shaykin, for $900 million, and then the remaining businesses would be purchased by Forstmann, Little.
Both sales would be leveraged buy-outs, in which the purchasers finance their acquisitions with borrowed funds and then use the firm’s revenue or assets to pay back the loans.
Typically, management participates in a leveraged buy-out. But Michel C. Bergerac, the chairman of Revlon, said Revlon managers had withdrawn from the Forstmann, Little investment group.
The motives of managers had been questioned because of the “golden parachutes,” or substantial dismissal benefits, awarded the executives. That money could have been used to invest in the buy-out.
“I asked to be relieved of my equity participation in the new venture so that there would be no confusion as to the motivation behind this agreement--to get the best possible transaction for Revlon stockholders and noteholders and, therefore, gain for them the greatest value possible,” Bergerac said in a statement distributed by Revlon.
The new agreement also sweetened the terms of notes that Revlon issued last month in exchange for 10 million shares of its stock, an earlier move in its battle against the Pantry Pride bid.
Revlon had exchanged 10-year notes paying annual interest of 11.75% for that stock. But after disclosing the plans to take the company private, the value of the notes fell sharply.
