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REVLON's MARKET VALUE IS UP $200 MIL. SINCE REVSON-LED BUY-OUT PROPOSAL IN 1984; RUMORED $2 BIL. PRICE IS 15% PREMIUM; PANTRY PRIDE HAS STRONG CASH POSITION

Executive Summary

Revlon's current $1.7 bil. market valuation, amid rumors of an acquisition bid from Pantry Pride, is about $200 mil. higher than last year when an investor group approached the firm with talk of a leveraged buyout. Speculation that Pantry Pride would make a bid for Revlon surfaced during the week of Aug. 12. The approximately $2 bil. purchase price mentioned on "the Street" represents a 15% or $6.71 per share premium, based on Revlon's Aug. 16 closing price of 44-3/4. The stock finished the week up 2-7/8. When the investor group, which included Martin Revson, approached Revlon in mid-1984, the company's market value stood at around $1.5 bil. Revlon currently has 38.3 mil. common shares outstanding. Revlon never got as far as official negotiations with the investor group last year, but the tone of the firm's public comment at the time suggested that it would not rule out a purchase bid if the price were right. Revlon after consulting with its investment banker, Lazard Freres, said that the Revson-led investor group "did not have the financial capabilities to carry out such a transaction" ("The Pink Sheet" June 4, p. 10). A Revlon spokesman said of the current "street talk" that the company does not comment on "rumors". Pantry Pride, however, is apparently well positioned to finance a cash bid of up to $2 bil. despite its relatively small size ($770 mil. in 1984 volume compared to Revlon's $2.4 bil.). The diversified Florida-based company has been controlled by MacAndrews & Forbes since March. Pantry Pride raised $700 mil. in July through a public offering. In the prospectus announcing the offering, the company said that it was "actively seeking to dispose of substantially all of its assets and businesses" and to acquire new ones. The prospectus also noted that the company recently began to solicit indications of interest from third parties concerning the sale of its remaining supermarket operations. Between October and May, Pantry Pride sold 63 supermarkets in the Virginia and Jacksonville, Fla. areas. At the time of the offering, the firm still operated 40 stores. Presumably, Pantry Pride could raise additional funds through bank borrowings or a return to the financial markets. Debt acquired to finance a purchase could also be recouped through the sale of some of Revlon's businesses. An unfriendly acquisition move by Pantry Pride seems unlikely. In the past two years, Revlon has taken several actions aimed at deterring unfriendly takeovers. Earlier this year, the company revised its articles of incorporation "to provide for removal of directors only for cause by vote of 80% of the outstanding stock." Noting the effects of the amendments would be to prevent the seating of dissident directors for up to two annual meetings, the proxy noted that the board is authorized to issue, without stockholder approval 31.3 mil. common shares and 33 mil. preferred shares. In 1984, the firm established an $18 mil. golden parachute for Revlon Chairman Michel Bergerac and $2 mil. settlements for four other execs. In addition, Pantry Pride's coffers could be threatened if Revlon were to acquire a position in the retail chain. Pantry Pride has $310 mil. in tax-loss carry-forwards as a result of Chapter 11 bankruptcy proceedings it entered into in 1978, when the company existed as the Philadelphia-based Food Fair. The company noted in the July prospectus that these tax-loss carryforwards could be disallowed under certain stock ownership changes and if the company changes its business substantially. The tax credits might be jeopardized if Revlon stepped in and purchased a block of Pantry Pride's stock.
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