So instead of taking the company private, Mr. Perelman sought to improve the company through an exchange offer, a transaction in which the company asked minority shareholders to swap their stock for preferred shares. The deal would have helped Revlon pay off a sizable loan that it owed. There was a question about the transaction’s fairness, so Revlon asked its independent board members to assess the deal.
Among minority shareholders were those invested in its stock through the company’s 401(k) retirement plan. The plans trustee decided that members could exchange their shares only if an outside investment banker decided that the transaction was adequate. After evaluating the deal a financial adviser determined that it was unfair and that the preferred shares being offered were not equal to the value of the common stock being exchanged.
According to the SEC, Revlon hid that decision from the retirement plan members. The company altered the agreement with the trustee to ensure that the trustee would not share the adviser’s opinion with Revlon shareholders. They also misrepresented in securities filings that the board’s process was “full, fair and complete.”