Revlon (REV - Get Report) announced after the markets closed Thursday that it would acquire fellow cosmetics maker Elizabeth Arden (RDEN) for about $870 million in cash.

Under the terms of the deal, Revlon will pay $14 per Elizabeth Arden share, a premium of roughly 50% over Elizabeth Arden's close of $9.31 on Thursday. Elizabeth Arden has 29.95 million shares outstanding, implying an equity value of about $419 million. Including refinancing existing debt, the purchase price yields an enterprise value of about $870 million.

The companies expect cost synergies of $140 million through "the elimination of duplicative activities, leveraging purchasing scale and optimizing the manufacturing and distribution networks." Assuming those cost savings materialize, Revlon expects leverage of 4.2 times net debt to adjusted earnings before interest, taxes, depreciation and amortization.

Revlon said in the statement that the addition of Elizabeth Arden will improve its presence in growing regions such as Asia Pacific and diversify its offerings in high-growth categories, including licensed prestige fragrances and branded skincare.  

Activist hedge fund Rhône Capital holds 14% of Elizabeth Arden shares and 20% of its voting power. After urging the company to explore a sale, Rhône in August 2014 made a strategic investment in the Miramar, Fla., company, boosting its stake from about 7.6% via a tender offer valued at up to $159.5 million.

Elizabeth Arden Chairman and CEO E. Scott Beattie owns a 4% stake in the company. Following the close of the merger, which the companies anticipated by year's end, Beattie will join Revlon's board of directors as nonexecutive vice chairman and senior adviser to Revlon CEO Fabian Garcia during the transition period.

On closing, New York's Revlon said its expected 2016 net sales will increase to about $3 billion from a range of $2 billion to $2.1 billion, with adjusted EBITDA increasing to $560 million from a range of $400 million to $420 million.

Revlon is controlled by Ron Perelman, who through his MacAndrews & Forbes vehicle owns a roughly 77% stake. MacAndrews & Forbes announced on Jan. 15 that it had retained Adam O. Emmerich and DongJu Song of Wachtell, Lipton, Rosen & Katz to advise on a review of strategic alternatives, shortly after which then-CEO Lorenzo Delpani stepped down for "personal reasons."

Last fall, ratings agencies Moody's Investors Service and Standard & Poor's downgraded Elizabeth Arden, both citing an unsustainable capital structure. Moody's downgraded the company's corporate family rating to Caa1 from B2 and S&P to CCC+ from B. S&P analysts warned at the time that Elizabeth Arden's core product market, the "celebrity brand fragrance market, is oversaturated, and the company lacks product innovation," but it did not forecast default for the following 12 months.

Elizabeth Arden shares jumped nearly 50% to $13.96 in after-hours trading Thursday. Revlon shares were up 0.5% to $31.30.

Bank of America Merrill Lynch and Citigroup Global Markets committed financing of $2.6 million to fund the acquisition and to refinance Elizabeth Arden's debt and Revlon's existing bank term loan and revolving credit facility. The buyer's existing senior notes will remain outstanding.

Dan Motulsky and Ben Axelrod of Moelis served as lead financial advisers to Revlon, which also took financial advice from BofA and Citi. Milbank, Tweed, Hadley & McCloy's David Zeltner and Scott Golenbock and Paul, Weiss, Rifkind, Wharton & Garrison provided outside counsel to the buyer.

Elizabeth Arden took financial advice from Jack Levy of Centerview Partners and legal advice from Michael Aiello and Howard Chatzinoff of Weil, Gotshal & Manges. Aiello and Chatzinoff previously advised Elizabeth Arden on Rhône's tender offer.