Revlon Settles SEC Charge Regarding a “Going Private Transaction”

Recently the SEC investigated Revlon, Inc., and found that Revlon “engaged in various acts described as ‘ring-fencing’ . . . to avoid receiving an opinion from a third-party financial advisor who ultimately found that the terms of Revlon’s proposed ‘going-private’ transaction did not provide for adequate consideration.”  Without admitting or denying guilt, Revlon is settling the charge by paying an $850,000 penalty. 

Basically, Revlon’s controlling shareholder asked the company to offer minority shareholders the option to exchange their common stock shares for preferred shares.  The exchanged shares would then be used towards Revlon’s debt.  Revlon’s trustee 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 exchanges common stock shares.”  See here.

When the third-party financial advisor found that there was inadequate consideration for the transaction, Revlon did not want this information disclosed.  Revlon’s ring-fencing actions “deprived its independent board members from knowing critical information” about its going private transaction.  See here.  This critical information included the “opportunity to receive revised, qualified, or supplemental disclosures, including any that might have informed them of the adequate consideration determination.”

Revlon neither admitted nor denied guilt of the SEC violation, but decided to settle the charge by paying an $850,000 penalty.  The SEC issued an order instituting cease-and-desist proceedings pursuant to Section 21C of the Securities Exchange Act of 1934.