Revlon Group, which last week said it was determined to acquire Gillette Co., said Monday that it agreed to drop its hostile $4.16-billion takeover bid and sell back its 13.8% stake to the company for $558 million.
Revlon Chairman Ronald O. Perelman, who is known for his ability to take over companies and sell what he does not want, said he is "very disappointed" that the merger with Gillette would not take place.
Perelman--who was attempting the takeover through Revlon and his miniconglomerate, MacAndrews & Forbes--is expected to make roughly a $35-million profit on the deal. Gillette will pay $59.50 per share for Revlon's 9.23 million shares of Gillette stock, plus $9 million in expenses.
Analysts branded the settlement as "greenmail"--when a company pays a premium to an unwanted suitor to end a takeover run.
But a Revlon spokesman suggested that Perelman was only acting in the interest of Revlon shareholders.
The settlement marks the third major takeover to crumble in the last week--each for different reasons. The friendly Wickes-Lear Siegler combination faltered last week when Wickes said it was doubtful it could arrange satisfactory bank financing, and British investor Sir James Goldsmith withdrew his hostile takeover bid for Goodyear Tire & Rubber and sold back his stock for an estimated $619 million.
Analysts had speculated in the Wickes case that Drexel Burnham Lambert's involvement as Lear Siegler's adviser might have contributed to the financing difficulties. Wickes was planning to rely on bank financing, but turmoil in the market for so-called junk bonds, Drexel's specialty, has caused speculation that such high-yield, high-risk bonds were eliminated as a financing option for Wickes. Drexel, Wickes' traditional adviser, has been involved in recent investigations of insider trading.
Revlon also is a Drexel client, but the New York investment banking firm was quick to release a statement Monday that "until today's announcement . . . Drexel Burnham Lambert remained highly confident that it could obtain commitments for the financing of the acquisition of Gillette."
As part of the settlement, Revlon agreed not to buy Gillette stock for 10 years. Drexel agreed not to finance the acquisition of Gillette stock for three years.
According to sources close to the transaction, Gillette approached Revlon over the weekend with the news that it had lined up a friendly third party that was willing to buy 20% of Gillette's stock. Revlon would therefore be unlikely to complete a merger with Gillette and the value of its Gillette stake would plummet.
Revlon said it ended its takeover bid because Perelman was "strongly persuaded" that Gillette "was pursuing alternate transactions that would effectively deprive Revlon and MacAndrews & Forbes of the opportunity to acquire control of Gillette and would cause Revlon and MacAndrews & Forbes substantial losses."
Although the takeover battle is over, the bitterness apparently isn't as Gillette responded to Revlon's statement with its own: "We strenuously disagree with the characterization of the events leading up to the withdrawal of the Revlon Group's tender offer. However, we think it would be unproductive to engage in a debate over matters that are in the past."
In an apparent attempt to prop up its stock price, Gillette said it plans to buy 7 million of its shares from time to time in the open market.
Wall Street wasn't pleased by Gillette's move: The company's stock price fell $10.75 a share to close at $45.875. Gillette was the most active issue on the New York Stock Exchange with 4.4 million shares changing hands. Revlon closed at $12.75 a share, up 62.5 cents.
Gillette Debt Under Review
The settlement and stock buyback also prompted Moody's Investors Service to place Gillette's commercial paper under review for possible downgrading. The $370 million in notes currently are rated Prime-1 by the rating agency.
While industry analysts labeled the settlement as greenmail, a Revlon spokesman pointed to the company's statement that said Perelman "reluctantly" dropped the offer "to protect the interests of Revlon public shareholders."
Perelman made more than $40 million in profits early this month when he sold back his shares in CPC International, a New Jersey food company, after the firm launched a stock buyback program. Perelman, however, has not been known as a "greenmailer" but as an aggressive pursuer of takeover targets.
"When he says he's going to acquire something, he does his best to acquire it," said Janet Mangano, an analyst with Gruntal & Co. in New York.