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Revlon

Anybody been looking at this stock? Big discount from Perelman ownership but I’m looking into this one. 

It’s whatever, just make it count.

- kDot

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I don’t know the specifics of this but I think the discount probably has more to do with their balance sheet. They are leveraged around 7.5x EBITDA. Their debt is not trading well at the moment. As a guy, I don’t buy any of their stuff but I’m guessing you can probably go on dhgate.com or Alibaba and buy the same quality stuff for way less than what Revlon is trying to sell it for. US amazon and ebay people are probably selling the same stuff for cheaper prices, too. The barriers to entry doing this kind of stuff are very low. Retail has major issues.

Equity valuations need to be low if the debt is trading at poor levels. Before buying this you need to do work on the credit and sustainability of their balance sheet b/c there could be a restructuring if things continue the way they are and you definitely do not want to be holding equity in those scenarios.

i wouldnt do it. they have a lot of debt and not much cash flow. they’re having heavy losses right now. and they dont have much cash.

I love my cheese. I got to have my cheddar.

Hired the COO of CL to serve as CEO as of April. There are multiple positive signals from this move, including cleaning it up for a sale. They’ve entered into a business restructuring this year which should drive cost savings from the Elizabeth Arden acquisition. Revlon is a pretty defensive cosmetics brand that is sold in drug stores, recession resistant, cash flow has been consistent historically. FCF yield is almost 7%, which is very favorable compared to larger peers that have less than half that. 

It is highly leveraged, which is certainly a risk. 

It’s whatever, just make it count.

- kDot

7% if your using market cap. if you use enterprise value. its like 1.6%. lol thats how levered they are. haha

btw this the guy you talking about?

https://en.wikipedia.org/wiki/Ronald_Perelman

I love my cheese. I got to have my cheddar.

. Yeah, Perelman’s company owns like 75% of float. 

It’s whatever, just make it count.

- kDot

he’s def a raider.

“Their general strategy was one Perelman would follow for the rest of his life, purchase a company, sell off superfluous divisions to reduce debt and generate profit, bring the company back to its core business, and either sell it or hang onto it for cash flow.”

some shady stuff, he seems to aggrandize himself at the expense of others:

In April 2001, M&F Worldwide bought Perelman’s 83% stake in Panavision for $128 million. This would be unremarkable except that Perelman controlled M&F Worldwide and the price paid for his stake was four times market value. At the time, M&F Worldwide was a healthy company with an excellent balance sheet while Panavision was bleeding red ink. M&F Worldwide’s other shareholders cried foul, alleging the only person who stood to benefit from the deal was Perelman and took their complaints to the courts.[62] Perelman insisted the deal was an excellent one and in the best interest of the shareholders because Panavision was well-positioned to profit from the move to digital cinematography.[63] The share price tumbled from six to three after the deal and reflected M&F Worldwide shareholders’ lack of confidence.[64] Perelman tried to pacify M&F Worldwide’s shareholders with a $15 million settlement, but the judge rejected it as grossly inadequate. Ultimately, Perelman agreed to undo the deal.[65]

Guess revlon has always been levered, but it seems like hes trying to sell it, or bits and pieces of it:

https://www.bloomberg.com/gadfly/articles/2016-03-29/new-revlon-ceo-sign...

anyways looking at recent metrics it seems **** is deteriorating. so the multiples stated on article are a lot more expensive now. 

haha he’s had a funny life, a lotta marriages:

http://www.dailymail.co.uk/news/article-2124660/Revlon-cosmetic-tycoon-R...

Having acquired MacAndrews and Forbes with a loan from first wife Golding, Mr Perelman came to public prominence with his hostile acquisition of Revlon in 1985.

Since then, Mr Perelman has added more than 50 companies to his portfolio including Marvel Entertainment, makers of the Thor, Captain America and Iron Man film franchises.

Described as a hot head in his business-dealings, Mr Perelman is known as someone always looking for the next corporate opportunity.

‘He’s not known as a kind-hearted guy,’ said Mark Stein of Portfolio.com in a New York Post profile on Perelman.

‘He’s run through a lot of executives.’

I love my cheese. I got to have my cheddar.

Yep, that’s what makes this one fun to look at. Lots of variables. 

It’s whatever, just make it count.

- kDot

why did they take on so much debt?

"You want a quote? Haven’t I written enough already???"

RIP

Chapter 11 not off the table

They used debt to fund two acquisitions in 2013 and 2016. 

Chapter 11 not off the table. A tripling in share price not off the table either. That’s why there is a market. This could be an entry point. Insiders bought $50m over the last few months. I’m taking a small position to keep it on my radar and will research more. 

It’s whatever, just make it count.

- kDot

Bought some too I might even double down 

the thing about a lotta debt is even if the stock price crashes. the valuation can still be expensive cuz the debt will remain the same. avoid at all costs imo

I love my cheese. I got to have my cheddar.

Yep, currently up about 20% from entry price on Friday. Now comes the hard part, hold or sell. Would be the easiest money I made in awhile. 

It’s whatever, just make it count.

- kDot

damn 30 day holding periods lol

"You want a quote? Haven’t I written enough already???"

RIP

Day trading is not my thing and I’m usually a long term investor, but with this risky of a name that I’m shaky on anyway it is tempting to sell and take the 15% (didn’t sell today). OTOH, it’s not a huge investment and I should prob watch and wait until I get more info or I think of some other insight. Small float so this thing moves like lightening. Have to risk adjust appropriately. 

Funny thing about zeros, it doesn’t matter where you buy. 

It’s whatever, just make it count.

- kDot

I’m in for the long run. This thing will be at 30 in no time 

^You able to trade your PA, even if you wanted to? That capability is new to me and thinking about how to handle that option. That said been watching this for a bit and I don’t think it’s going away. Wonder who was selling on the earnings release. 

It’s whatever, just make it count.

- kDot

I don’t know the ins and outs of Revlon. I just know it will be volatile. Their ‘24s are trading at 78 right now. The debt is in distressed land so the equity is going to go on wild rides. Equity can trade like an option for distressed borrowers. You really have to do your work on the credit here. Their balance sheet is really leveraged aggressively after the Elizabeth Arden deal. Their liquidity looks to be OK, though. If they can operationally execute on stuff it will work out. The debt markets are quite pessimistic on retail and discretionary consumer products right now, however, and rightfully so.

I have done work on distressed names and have seen people get totally wiped out on the equity through restructurings. They justify buying the equity b/c they like the business but don’t spend enough time looking to determine if the capital structure is sustainable. If it is not sustainable and you like the business, you have to buy the debt and not the equity. Equity will get mostly wiped out in a chapter 11. I have seen people make huge mistakes not buying the right part of the capital structure. Returns on the debt will be +50% and very negative on the equity. That is why you have to do work on the credit.

I don’t know anything about makeup and beauty products but you can buy a lot of this stuff on DHGate or Alibaba for a lot cheaper than what you’d pay in a US store. This is a problem for a lot of retail products. How much does that directly impact Revlon and their products? I don’t know.

Hmmm, was just reading the largest outside shareholders quarterly letter. Some interesting points below. This is an investing soap opera.

“The biggest risk we face with Revlon I believe is not if the business will resume a growth trajectory, it’s whether or not Revlon’s largest shareholder, Ron Perelman, will attempt to buy out the remaining shares at an unfairly low price. Beginning on May 8th, three days after Revlon’s surprisingly weak Q1 report came out and the stock plummeted, Perelman began aggressively buying more shares, at prices ranging from $18.20 to $23.25, and through June 20th he had acquired roughly 2.44M additional shares, raising his stake from 77.5% to 81.9%. Normally insider buying like that would be simply encouraging; a show of confidence by a well-informed insider with an excellent track record in timing such investments. But given Ron Perelman’s well-known proclivity for trying to take advantage of minority shareholders when a stock he controls is down, his buying is at least as disconcerting as it is encouraging, given what it likely portends.

To paraphrase Max von Sydow’s character, the assassin, Joubert, in advising Robert Redford’s character not to go back to New York City at the end of the 1975 movie classic Three Days of the Condor, “It will happen this way…” Revlon reports Q2 results on August 4th, and the numbers are weak again. The stock drops to $15. Shortly thereafter, Perelman announces an all cash takeover offer at $25, a magnanimous 67% premium to $15. An investment bank is paid $5M to say it’s fair, and they will come up with various contortions of data to say it’s fair. The sycophantic board of directors approves in order to stay on the guest list for Perelman’s annual New Year’s Eve/Birthday bash on St. Barts and other important parties he hosts during the year. Arbs buy stock at $24.80. Rational shareholders loudly object to $25 and appear to have enough votes to block. Perelman raises offer to $27 and arbs rejoice and vote yes, pushing the balance to the necessary 50.1% of the minority held shares, and Perelman laughs heartily all the way to the bank when he sells Revlon two years later to Unilever or Shiseido for the equivalent of $75 per share.

That is the sad way the movie would normally end, except that in order to win the majority of the minority-held shares in a tender offer, Perelman would need just over 9.035% of shares outstanding of the 18.07% held by minority investors to vote in favor of any bid, and since Mittleman Brothers LLC controls nearly 5%, and we know of some other value-oriented investors who we think own around 3.5% and would likely not be fooled into selling out cheaply, it wouldn’t take much more than another 1% of shares outstanding voting no to block any such potential low-ball deal. Hopefully we won’t have to test that theory, but a simple google search for “Ron Perelman and minority shareholders” shows that the threat is real.”

http://www.valuewalk.com/2017/08/mittleman-investment-management-2q17-in...

It’s whatever, just make it count.

- kDot