WASHINGTON (CN) – Revlon will pay $850,000 to settle charges it misled shareholders, including its own employees, during a going-private transaction, the SEC said today.
“Revlon engaged in various acts described as ‘ring-fencing,’ which were acts undertaken by Revlon to avoid receiving an opinion from a third-party financial adviser who ultimately found that the terms of Revlon’s proposed ‘going-private’ transaction did not provide for adequate consideration (as that term is used in the Employee Retirement Income Security Act of 1974 (‘ERISA’)) to participants in Revlon’s 401(k) plan,” the complaint states. “Revlon’s ‘ring-fencing’ acts operated as a fraud or deceit upon Revlon’s minority shareholders – as they rendered various disclosures in Revlon’s publicly filed offering documents materially misleading to Revlon’s minority shareholders.
“In 2009, Revlon owed a significant debt to its controlling shareholder. To address this significant debt, Revlon and its controlling shareholder ultimately proposed a going-private, voluntary exchange offer transaction. In this transaction, Revlon’s minority shareholders could decide whether to exchange their Revlon common stock shares for newly issued preferred stock with certain financial characteristics. The exchanged common stock shares would ultimately be provided to Revlon’s controlling shareholder, thereby reducing Revlon’s debt.
“Revlon had many minority shareholders. A subset of those minority shareholders included Revlon current and former employees, as well as Revlon retirees and beneficiaries, who held Revlon shares in Revlon’s 401(k) plan (‘401(k) members’). Revlon’s 401(k) plan was administered by a Massachusetts trust company (the ‘trustee’), which determined that it could only allow 401(k) members to tender their shares in the exchange offer if a third-party financial adviser found that the exchange offer provided for ‘adequate consideration.’ Thus, a third-party financial adviser had to determine whether tendering 401(k) members would receive an asset whose value at least equaled the fair market value of the exchanged common stock shares (‘the adequate consideration opinion’ or ‘the adequate consideration determination’).
“Whether the trustee could allow 401(k) members to tender their shares rested solely on the result of the adequate consideration opinion. If the third-party financial adviser determined that the exchange offer provided for adequate consideration, then the trustee would allow 401(k) members to tender their shares. The trustee informed Revlon that this opinion would wholly determine whether it could allow 401(k) members to tender their shares.
“Revlon did not want to disclose the adequate consideration determination to shareholders considering the exchange offer. To avoid a potential disclosure obligation, Revlon engaged in several acts to avoid receiving the adequate consideration determination. For example, Revlon proposed and entered into an amendment to the trust agreement it had with the trustee to ensure that the trustee would not share the adequate consideration determination with it; ensured that it was not a party to any engagement letter concerning the adequate consideration determination; and directed the trustee to inform Revlon of its decision whether to allow 401(k) members to tender their shares without any reference to the adequate consideration determination. A Revlon employee described these acts as ‘ring-fencing.’
“Ultimately, the third-party financial adviser found that the exchange offer did not provide adequate consideration to tendering 401(k) members. Thus, the 401(k) members who wished to tender their shares in the exchange offer could not do so. Neither Revlon’s minority shareholders nor its Independent Board members knew the adviser determined that the consideration to be received by 401(k) members – which was the same consideration to be received by Revlon’s non-401(k) minority shareholders – was not ‘adequate consideration’ under ERISA. Moreover, neither Revlon minority shareholders nor its Independent Board members knew that Revlon had engaged in several acts to ‘ring-fence’ that determination.”
As is customary with the SEC, Revlon agreed to pay the money without admitting it had done anything wrong.
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