REVLON CHARGED WITH MISLEADING SHAREHOLDERS

The New York Times is reporting that on Thursday June 14, 2013, the Securities and Exchange Commission announced that Revlon (REV) had agreed to pay an $850,000 penalty to settle accusations that it deceived shareholders and its directors in connection with a failed takeover in 2009.  To date Revlon has paid roughly $37 million in settlements to shareholders in related private lawsuits but the company has neither admitted nor denied any wrongdoing.

In 2009, during the depths of the recession, Revlon had posted losses for several years, losing market share to competitors, and suffering under heavy debt.  Ronald Perelman tried to solve the company’s problems by buying out minority shareholders and taking the company private. However, an independent financial adviser determined that the proposed deal was unfair to Revlon and the minority shareholders.

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.”

The S.E.C. order described Revlon’s conduct as “ring fencing,” defined as withholding vital information from shareholders that would have helped them decide whether to exchange their shares. As a result of Revlon’s misconduct, the company’s board was unable to fairly evaluate the adequacy of the exchange offer, according to the SEC.

“By erecting informational barriers, Revlon kept critically important information from its board and, in turn, misled investors” said Antonia Chion, an associate director in the SEC’s enforcement division.

Shares of Revlon have risen about 40 percent over the last year. In trading Thursday, the stock rose about 3.7 percent, to $20.64.