Regulators Conduct ‘Routine’ Inquiry Into Redken Trading
Securities regulators said Monday that they are reviewing a burst of trading in Redken Laboratories’ stock the day before Redken’s founder announced plans to convert the Canoga Park-based company to private ownership for about $48 million.
On May 25, the day before the announcement, the stock climbed $2.75 a share to $27, and 84,400 shares changed hands--10 times the stock’s average daily volume.
The National Assn. of Securities Dealers, which governs the national over-the-counter market on which Redken’s stock trades, stressed that its review is routine so far. The Securities and Exchange Commission, as a matter of policy, does not confirm or deny its formal investigations. But an SEC official said the agency is taking a preliminary look at the unusual trading.
“We’re at an early stage now, but certainly we’re going to try to find out what caused this strange increase in price and volume in the stock when there was no news out,” said Irving Einhorn, the SEC’s regional administrator in Los Angeles.
Redken’s founder and chief executive, Paula Kent Meehan, said she and other Redken managers had not been interviewed by the SEC or NASD but that both organizations told her “they are investigating.”
Redken makes hair, skin and cosmetics products for sale through beauty salons and other professional channels. On May 26, the company announced an agreement to be acquired by Meehan and her husband, John E. Meehan, chairman and president.
Under the agreement, the Meehans launched a tender offer to buy the 1.4 million Redken shares that they don’t already own for $34 a share, or about $48 million. The offer expires June 29. The Meehan’s currently own 48% of Redken’s shares outstanding.
After the announcement, Redken’s stock surged $7.25 a share to close at $34.25 as 237,200 shares changed hands. (The stock closed Monday at $34.50 a share, unchanged.)
But regulators are looking at the prior day’s trading on May 25, when the stock price climbed and the volume shot up. The unusual activity was spotted by NASD’s market surveillance computers, and on the following day the NASD confirmed that Redken’s stock was under review.
Whenever a stock “breaks the established price and volume parameters that are programmed into the computer, we review it to see if the breaks were the result of normal market forces or whether there’s reason to believe improprieties are involved,” Enno Hobbing, an NASD spokesman in Washington said Monday.
Meehan said she is “concerned” about the heavy trading of Redken shares before the takeover offer was disclosed. She said that as trading snowballed on May 25, she asked the NASD to suspend trading in Redken shares.
However, the NASD declined the request “unless we had a (press) release at the end of the day” with an announcement, which Redken was unable to provide because it did not reach agreement on the takeover deal until that night, she said.
