Revlon, the cosmetics company controlled by the billionaire financier Ronald O. Perelman, agreed to pay a $850,000 penalty to settle civil charges brought by federal securities regulators that it misled shareholders.
The Securities and Exchange Commission announced on Thursday that Revlon hid crucial information from its independent board members related to a complex corporate finance transaction that the company tried to execute with its minority shareholders.
“Going-private transactions create opportunities for shareholder abuse and can have coercive effects on minority shareholders,†said Antonia Chion, an associate director in the S.E.C.’s division of enforcement. “By erecting informational barriers, Revlon kept critically important information from its board and, in turn, misled investors.â€
Colleen Mahoney, a lawyer for Revlon at Skadden, Arps, Slate, Meagher & Flom, did not immediately respond to a request for comment. Revlon, which neither admitted nor denied wrongdoing, had previously disclosed the settlement in its quarterly earning announcement in April.
The penalty assessed against Revlon is the latest episode in Mr. Perelman’s eventful reign over the cosmetics company, which he has owned since 1985 when he gained control of it in a $1.8 billion hostile takeover. Today, Mr. Perelman’s investment company, MacAndrews & Forbes, still controls roughly three-quarters of Revlon’s shares.
By 2009, Revlon was struggling after years of losses and losing market share to competitors like L’Oreal. It was also suffering under a heavy debt load, and Mr. Perelman tried to solve the company’s balance sheet woes by buying out the minority shareholders and taking the company private.
But those plans were thwarted when a financial adviser determined that the proposed going-private transaction was unfair to Revlon and the minority shareholders. So instead of taking the company private, Mr. Perelman sought to conduct a so-called exchange offer, a transaction in which the company asked minority shareholders to exchange their stock for preferred shares.
As designed, the complex deal would help Revlon pay off a significant debt that it owed to MacAndrews & Forbes.
The independent board members of Revlon were asked to assess the fairness of the exchange offer for all of the company’s minority shareholders. Some of those minority shareholders were invested in Revlon stock through the company’s 401(k) retirement plan, and a trustee for the plan determined that its members could only exchange their shares if a third-party financial adviser decided that the transaction was adequate. After assessing the proposed deal, a financial adviser determined that the deal was, like the going-private transaction, also unfair â€" that the preferred shares being offered were not equal to the value of the common stock.
Revlon, however, went to great lengths to hide the adviser’s decision from the retirement plan members, said the S.E.C. Among other deceitful maneuvers, it altered the agreement with the trustee to ensure that the trustee would not share the adviser’s opinion. The company also represented in securities filings that the board’s process was “full, fair, and complete.â€
The S.E.C. order described Revlon’s conduct as “ring fencing,†or cordoning off vital information from minority shareholders that would have helped them decide whether to exchange their shares with Mr. Perelman’s holding company. As a result of Revlon’s misconduct, the agency said, the company’s board was unable to fairly evaluate the adequacy of the exchange offer.
Shares of Revlon have performed well recently, rising about 42 percent over the past year. In midday trading Thursday, the stock was up about 2.4 percent to $20.40.
As for Mr. Perelman, he made news last month when Columbia Business School announced it had received a $100 million gift from the 70-year-old billionaire to create the Ronald O. Perelman Center for Business Innovation. Earlier in the year, he made a $25 million donation to his alma mater, the University of Pennsylvania.
