The SEC charged
cosmetics and beauty care manufacturer Revlon with violating federal securities
laws when the company misled shareholders during a "going private
transaction."
Going private transactions can occur in many
forms and typically involve the company delisting and deregistering its stock
and cashing out their shareholders so the company or a private equity firm can
acquire all of the outstanding shares. An SEC investigation found that during a
voluntary exchange offer to satisfy a significant debt to its controlling
shareholder, Revlon engaged in "ring fencing" that deprived its
independent board members from knowing critical information: the transaction's
consideration had been deemed inadequate by a third party who evaluated whether
current and former employees invested in Revlon common stock through the
company's 401(k) plan could exchange their shares.
Revlon agreed to settle the SEC's charges and
pay an $850,000 penalty.
"Going private transactions create
opportunities for shareholder abuse and can have coercive effects on minority
shareholders," said Antonia Chion, Associate Director in the SEC's Division
of Enforcement. "By erecting informational barriers, Revlon kept
critically important information from its board and, in turn, misled
investors."
According to the SEC's order instituting
settled administrative proceedings, controlling shareholder MacAndrews and
Forbes (M&F) asked Revlon in 2009 to offer minority shareholders the option
to exchange their common stock shares on a one-for-one basis for preferred
shares with certain financial characteristics. The exchanged shares would then
be provided to M&F to pay down Revlon's debt. The trustee administering
Revlon's 401(k) plan decided that 401(k) members could tender their shares only
if a third-party financial adviser made an "adequate consideration
determination," which involved assessing whether the value of the
preferred stock 401(k) members would receive was at least equal to the fair
market value of the exchanged common stock shares. The third-party financial
adviser ultimately found that the consideration offered in the transaction was
inadequate for tendering 401(k) shareholders.
The attorneys at Sallah Astarita & Cox, LLC are available for consultation on going private transactions, as well as representing in claims involving misrepresentations in connection with such transactions. For more information contact us by email or visit our website at www.sallahlaw.com. For more information on this case, visit SEC Charges Revlon with Misleading Shareholders in Going Private Transaction.
