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GILLETTE CUTS REVLON BID SHORT: LITIGATION DROPPED, AS PERELMAN AGREES TO SELL STAKE FOR $558 MIL.; REVLON TO CLEAR $30 MIL; DREXEL BURNHAM OUT FOR 3 YEARS

Executive Summary

Gillette is paying $558 mil. to maintain its independence from Revlon. The big shaver won a quick, but costly, first found by fending off Revlon and Drexel Burnham in 11 days. Under an agreement announced Nov. 24, Gillette will pay Revlon $59.50 for each of 9.23 mil. Gillette shares. Revlon purchased the shares between Halloween and Nov. 13 for approximately $514 mil. An additional $9 mil. payment for Revlon's expenses in connection with the takeover attempt puts the total Gillette outlay at approximately $558 mil. Revlon's $35 mil. profit will be reduced by 15% or just over $5 mil. under an earlier fee arrangement with its investment banker, Drexel Burnham Lambert. Gillette made quick use of the insider-trading scandals to ward of Revlon. The cosmetics firm launched its hostile bid just as the Boesky insidertrading scandal was reaching a peak of public attention. Following the agreement with Revlon, Gillette's stock dropped nearly 11 points in Monday's session to close at 45-7/8. The issued seemed to stabilize on Nov. 24, finishing the day at 47, up 1-1/8, and closed the shortened Thanksgiving week at 48-3/8. After the buy-back, Gillette will have about 14% fewer shares outstanding. The stock is now trading at about a 20% premium to its mid-October trading range. In the meantime, two Gillette shareholders have reportedly filed suit against Revlon alleging that the company planned all along to sell back its Gillette stake for a profit, thereby hurting investors who purchased Gillette shares between Nov. 14 and Nov. 19. "The purchase agreement also provides for a standstill agreement under which Revlon Group agrees not to purchase Gillette stock for a period of 10 years," Gillette said, adding that Revlon's investment banker, Drexel Burnham Lambert, has agreed not to finance the acquisition of Gillette stock for three years. Revlon Will Have Nearly $1 Bil. On Hand For Future Shopping/Hunting Trips Gilletee said that in addition to purchasing the Revlon shares, the company would purchase "up to an additional 7 mil. shares of its stock from time-to-time in the open market or in privately negotiated transactions, depending upon market conditions and other factors." The release also notes that the agreement provides for the termination of all lawsuits between the two companies. On Nov. 17, Gillette filed a suit in Boston Federal Court charging Revlon Chairman Ronald Perelman with insider trading and subpoenaed the records six investment firms in connection with the alleged activity. Revlon countered with a suit of its own, challenging Gillette's poison pill share purchase rights plan and a Massachusetts anti-takeover law under which Gillette sought relief. Revlon is not sitting still, however, and continuing to move ahead with a $345 mil. cash purchase of the Max Factor, Almay and Halston cosmetics, fragrances and toiletries businesses. The company said it hopes to complete these acquisitions in early December. Revlon appears to have an ample stake for future acquisitions. According to a recent filing with the Securities & Exchange Commission the company, as of Aug. 31 had approximately $1.2 bil. in cash, cash equivalents and securities investments available for acquisitions and as working capital. Including the profit from its sale of Gillette stock, Revlon should have over $900 mil. available upon completion of the Max Factor/Halston/Almay deal, prior to further borrowings.
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