This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Revlon Settles With SEC Over 2009 Stock Swap

Stocks in this article: REV

NEW YORK ( TheStreet) -- Revlon (REV) on Thursday settled Securities and Exchange Commission charges of misleading investors, for $850,000, without admitting or denying guilt.

The SEC alleged that the cosmetics giant mislead its public investors in a 2009 shareholder swap with majority owner MacAndrews & Forbes.

According to the SEC, Revlon violated securities laws by misleading investors on the value of their holdings in stock exchange to give give shareholders preferred stock for their common stock holdings. The regulator said Revlon intentionally sought to withhold an independent third party opinion that stated the exchange undervalued the company's shares.

"By erecting informational barriers, Revlon kept critically important information from its board and, in turn, misled investors," Antonia Chion, Associate Director in the SEC's Division of Enforcement, said in a statement.

The shareholder exchange centered on a large debt Revlon owed to its majority owner, Ronald Perelman-run MacAndrews & Forbes, and a proposal to extinguish some of those loans through a tender offer for the company's outstanding common stock.

In April 2009, Revlon owed $107 million on a term loan to MacAndrews & Forbes that was set to expire in August. Given Revlon's financial constraints at the time, the company was at risk of failing to repay its debt, which could have triggered a set of other defaults.

To alleviate Revlon's liquidity crunch, MacAndrews & Forbes proposed a mandatory offer to swap the company's existing common stock on a one-for-one basis for new preferred stock that would pay a quarterly dividend, in a move to take the company private. As part of the deal, MacAndrews & Forbes would eliminate most of Revlon's loan balance.

To evaluate the merger proposal, Revlon's independent board members formed a special committee to weigh the financial merits of the exchange. However, after a third party financial advisor deemed the exchange unfair to common shareholders, Revlon sought to suppress those findings in public filings, according to the SEC.

When the third party analysis showed the exchange undervalued Revlon shares, the company tabled MacAndrews' mandatory exchange and instead proceeded with a relatively similar voluntary exchange for public shareholders. Some Revlon shareholders, such as a trustee for the company's 401k plan, however, would be prohibited from participating in a voluntary exchange if a third party deemed it inadequate.

Revlon, as a result, was accused by the SEC of "ring fencing" the findings of the third party review by essentially brokering communications with the 401k plan that would allow it to suppress the opinion of inadequacy to all other public shareholders.

In public filings, Revlon "materially misled minority shareholders" when disclosing investors could voluntarily tender their shares, according to the SEC.

"In fact, all minority shareholders - as well as its Independent Board members - were unaware that Revlon's 401(k) members would not be able to tender their shares if an adviser found that the consideration offered for their shares was inadequate," the SEC complaint states.

"Moreover, Revlon's non-401(k) minority shareholders were not on equal footing with Revlon's 401(k) members because Revlon's 401(k) members received protection as a result of the adviser's finding that 401(k) members were not provided adequate consideration."

On October 8, 2009, Revlon shareholders tendered 9.3 million shares of Revlon Class A common stock, or approximately 46% of the company's shares not owned by MacAndrews & Forbes.

In June 2012, Revlon settled a shareholder lawsuit surrounding the exchange with Fidelity Management for $19.9 million and recorded a $6.7 million charge to its earnings.

Since the shareholder exchange offer, Revlon shares have gone up roughly fourfold. Year-to-date Revlon shares have gained over 40% to $20.43. In Thursday trading, Revlon shares gained over 2.5%.

-- Written by Antoine Gara in New York

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,778.15 +421.28 2.43%
S&P 500 2,061.23 +48.34 2.40%
NASDAQ 4,748.3960 +104.0840 2.24%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs