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Revlon’s Share Price Gets A Lift From Lighter Than Expected SEC Fine
The Securities and Exchange Commission (SEC) slapped a charge of $850,000 on Revlon ( REV ) last week on account that it allegedly shortchanged its minority shareholders when the company tried to go private in 2009. However, the company had already provided for a contingency loss of $8.9 million in 2012 for the same deal and the modest fine of $850,000 was warmly greeted by the market.
Billionaire Ronald O. Perelman owns nearly 77% of the company's shares, up from 58% in 2009 when he in a failed attempt to take the company private offered Revlon's minority shareholders preference shares in the company in exchange for their common stock. The common stock was then to be used in paying off a maturing debt, which was issued by the company MacAndrews & Forbes, of which Ronald O. Perelman is the Chairman and CEO.
The terms of the offer were not fair to the minority shareholders as determined by a third party independent financial advisor. Some of the investors had invested in its stock through the company's 401(k) retirement plan, and the plan's trustee found the offer to be unfair after the investigation was completed. Revlon, however, made some arrangements to hide this investigation from the individual retirement plan members, which was the crux of class action lawsuit filed against Revlon. The SEC fined Revlon on account of its misconduct and warned against indulging in any such practices in the future.
Effect On Earnings
Revlon's recent settlement with the SEC is a one-time gain that will impact the company's quarterly earnings as the excess of provision would be added back to the company's net income. Revlon reported a net income of about $188 million in 2012. The company would report higher net earnings and earnings-per-share for this quarter on account of this settlement. Our price estimate remains the same as before since the recent settlement does not change any fundamental drivers of the company.