Over the last weekend in September, top executives of Revlon Inc. met in private with investment bankers and merger lawyers to plan a defense to a hostile takeover bid by Pantry Pride Inc.
Although these discussions were secret, nearly 4 million shares of Revlon stock were traded on the New York Stock Exchange on Sept. 30 and Oct. 1, pushing the price of the stock up by 20 precent and causing the exchange to halt trading in Revlon. Rumors that Revlon was working on defensive moves were circulating among stock traders by Oct. 1, the SEC noted.
On Oct. 2, Revlon announced that its board had been meeting to consider the takeover defenses, including an agreement between the company's top management and outside investors to acquire Revlon stock and take the company private.
Yesterday, the Securities and Exchange Commission charged that Revlon had violated SEC rules requiring timely and accurate public disclosure of the merger negotiations. Although Revlon had announced on Sept. 24 that it might begin negotiations with potential investors to counter the Pantry Pride bid, it did not amend the statement to reflect the weekend negotiations until the following Wednesday, Oct. 2, the SEC said.
The SEC said its action was meant to underscore the importance of the disclosure requirement. There were no sanctions against Revlon. It agreed to settle the action by promising to comply with the disclosure requirements in the future, without admitting or denying the SEC's contentions.
The SEC's recounting of the Revlon negotiations that weekend outlines a series of fast-moving meetings involving some of the major investment banking and law firms in the merger field. Although rumors about these meetings moved almost as rapidly into the market, the SEC did not allege that any insider information was leaked. An SEC official declined to comment on whether the commission is investigating any individuals in connection with the Revlon trading.
The negotiations culminated in Revlon's agreement to be taken over by Forstmann Little & Co., an investment firm. To make certain that Forstmann Little's bid prevailed, Revlon granted Forstmann Little the right to purchase some Revlon assets for less than market value if another bidder acquired 40 percent or more of Revlon.
Pantry Pride sued and, in November, the Delaware Supreme Court sided with Pantry Pride, ruling that the so-called "lock-up" defense that Revlon and Forstmann Little had designed was unfair to Revlon shareholders. After the court ruling, Revlon management gave up its fight and Pantry Pride won control of the company.