Big Gillette Holders Weigh Filing Suit Over Revlon Deal
Some of Gillette’s largest shareholders are displeased and are considering filing suit over the company’s decision to buy back nearly 14% of its stock from Revlon Group, which had threatened to take over the consumer products firm.
Investors said they are upset because Revlon is being paid $59.50 a share--a total of $558 million including expenses--while Gillette stock is now trading for less than $50. Revlon had offered to take over Gillette for $65 per share.
“We are bothered by it,” said Jose Arau, principal investment officer for the California Public Employees Retirement System, which owns nearly 1.1 million shares of Gillette. “It’s a very egregious case of greenmail. . . . It looks as if they haven’t done a good job for the shareholders.”
Greenmail is the practice of paying a premium to one shareholder or group to avoid a takeover.
The purchase of Revlon’s shares caused the price of Gillette’s stock to plunge $10.75 a share to close at $45.875 on Monday, when the transaction was announced. The price has since rebounded somewhat, closing Wednesday at $48 a share on the New York Stock Exchange.
Officials of the California Public Employees Retirement System plan to meet with lawyers to discuss filing a class-action suit on behalf of shareholders or joining a suit if another shareholder files one, Arau said.
A trader for another large institutional holder, who wished to remain anonymous, said some of the other big shareholders are considering filing a class-action suit against Gillette for paying greenmail.
Another of Gillette’s largest shareholders, Rosenberg Capital Management of San Francisco, also is “extremely unhappy,” a spokesman said. “We are reviewing the options that are available to ourselves and our clients.” Rosenberg Capital Management, an investment management firm, owns about 1.5 million shares of the consumer products company’s stock.
Revlon gave up its merger bid when Gillette was able to find a friendly third party that was willing to buy 20% of the company’s stock. Revlon reportedly had been willing to sweeten its bid before Gillette’s move.
Deepak Raj, an analyst with Merrill Lynch, said that “the pressure has to be on management to enhance shareholder value.”
The surest way would be to sell some assets and buy back stock, he said. “They have several divisions with a significant amount of revenues that do not produce adequate return to the bottom line.”
Gillette has launched a program to buy back up to 7 million, or about 10%, of its own shares from time to time in the market.
A Gillette spokesman confirmed that the company does not plan a major restructuring but will probably trim its capital spending plans.
