REVLON's 20-YEAR EXPERIMENT WITH COSMETIC/HEALTH CARE CONGLOMERATE ENDING HEALTH CARE GOES TO BERGERAC, COSMETICS TO WACHNER, NORCLIFF THAYER TO AHP

Revlon's long-term strategic plan to fund the development of a broad-based health care business on the profits of cosmetics and toiletries is ending under control of the current Revlon management in response to the threat of the Pantry Pride raid. Revlon management, two leveraged buyout houses, and American Home Products are collaborating to fend off Pantry Pride and divide the company up into its three basic units: devices, ophthalmics and Rx products.; cosmetics; and OTC drugs. The break-up of Revlon and the diversification program begun in the mid-1960's by Revlon founder Charles Revson was announced Oct. 3 as a double leveraged buyout and a divestiture. Under the arrangement, Revlon shareholders will receive $56 per share or approximately $1.77 bil. as the company goes private. A leveraged buyout/venture capital group, Adler & Shaykin, will initiate the deal by purchasing the cosmetics segment for $900 mil. prior to buyout of the public shareholders by Forstmann Little. The Forstmann group will buy out the shareholders and then American Home Products will purchase Norcliff-Thayer and Reheis Chemicals (fine chemicals) from the Forstmann group for a price reportedly in the $350 mil. range. Revlon stated that the total value of the deal -- including debt to be assumed or refinanced -- "is approximately $3 bil." Forstmann Little will "invest approximately $445 mil. of its capital in the transaction," Revlon said, adding: "The balance of the purchase price will be derived in bank loans." However, the deal apparently puts the cash outlay for the health care segment at about $500 mil. That could be a bargain based on the total operating profits of that segment in the $165 mil. range in 1984 and the cost of building the business over the last 15 years. The major segments of the health care business were purchased at a total price of well over $570 mil. during the last 10 years. Buyout Provides Way For Bergerac To Say "Goodbye, Charlie," And Run Acquisitions Pantry Pride maintained in its explanation of the financing of its offer that the health care business could be sold off for as much as $1.9 bil. Revlon has found a way to get shareholders more per share and spin off the health care business for substantially less than that price. Pantry Pride had moved its per share price up to the $53 per share price during its takeover attempts. That price is just a little above the target level of preliminary discussions by another leveraged buyout group 18 months ago. When the smoke clears, Revlon's health care group (with sales of over $1 bil. in 1984) will be controlled by Forstmann Little and a management group headed by Revlon Chairman Michel Bergerac. He was brought in by Revson in the early 1970's from ITT to build the health care diversification and now will apparently get to run the business segment that he built. The Revlon health group comprises a vision care business (Barnes-Hind, Coburn ophthalmic equipment, Professional Vision intraocular lenses and YAG lasers) with 1984 sales of $226 mil. The diagnostic segment has sales of $415 mil. and includes Technicon, Meloy Labs and National Health Labs (clinical lab testing). The drug business is USV and Armour with sales of $410 mil. As a leveraged buyout, pressures may continue on the health care business to pay back debt. Depending where the debt from the Pantry Pride defensive moves is allocated, some parts of the health business could eventually be spun off. The American Home Products part of the deal is important to remove some of that debt. From AHP's perspective, the company is going to get a strong acne line of products (Oxy) and the Lewis-Howe Tums line to add to the Whitehall business. Norcliff Thayer was originally singled out by Revlon for divestiture to pay for debt incurred in the fight against Pantry Pride. Norcliff Thayer discussions were reportedly in the $250 mil. range. AHP was convinced to take the chemical business as part of the package for roughly another $100 mil. The Norcliff Thayer purchase could push AHP's annual OTC volume over the $800 mil. level. Whitehall reported 1984 sales of $640 mil. The $1.1 bil. beauty product business will be headed by former Max Factor President Linda Wachner. After the Beatrice purchase of Esmark in 1984, Wachner moved to Adler & Shaykin. The buyout will consolidate her position at the top of a cosmetics business protected from the vagaries of the conglomerate mergers. Wachner will hold the title of chairman/CEO of the Revlon beauty business. Adler & Shaykin Principal Frederick Adler Goes From High Tech To High Fashion Ironically, the group financing the buyout of the beauty business includes Frederick Adler as a principal. Several years ago, he was a leading force in high tech start-ups such as Bethesda Research Labs. By reinvesting in beauty care, he is moving from high tech to high fashion. The leveraged buyout by the Forstmann Little group "is subject to the approval by the shareholders of Revlon, consummation of the proposed merger with Forstmann Little, or, after a ten-day period, upon the consummation of another transaction pursuant to which all stockholders will receive $56 or more in case for all their shares," the release states. The agreement will be submitted to Revlon shareholders for approval "at a special meeting that it is anticipated will be held in late November," Revlon's statement said. The buyout plan was approved by Revlon's board of directors at an Oct. 3 meeting. The buyout arrangement as described by Revlon and Forstmann does not include "lockup" provisions. The specific reference to an opening for an offer above $56 per share after a ten-day period leaves the door open for any full offers above that level. Revlon has used the $65 per share figure as its publicized target for dealings with outside bidders. Revlon said that it will retain its "poison pill" provision in place. According to the buyout announcement, "the merger agreement provides that the board will only redeem the company's note purchase rights either upon the consummation of the proposed merger with Forstmann Little, or after a ten-day period, upon consummation of another transaction pursuant to which all stockholders will receive $56 or more in cash for their shares."