The New Ron Perelman Has An Old Problem

Ronald O. Perelman feels good. Trademark cigar in hand, the erstwhile raider looks tan and fit. The no-holds-barred negotiator who seized Revlon Inc. in one of the 1980s' nastiest takeovers now says he's shunning the world of highly leveraged deals, and instead seems eager to burnish his image as a builder and operator of companies.

Across his far-flung empire, Perelman has sold assets--using the proceeds to pay off debt, buy stakes in several properties, and inject equity into others. "Our strategy today is to continue to build up both internally and through acquisitions each of our core businesses," says the 50-year-old mogul.

Problem is, there's one vestige of the go-go 1980s he just can't seem to get into 1990s shape: Revlon. After grabbing the cosmetics company in 1985, he loaded its balance sheet with $2.9 billion in debt. True, Perelman has slashed it to roughly $1 billion, recently refinanced at lower interest rates. But burdened by a still-hefty interest tab and unprofitable product lines, Revlon has lost money since 1991. Perelman was forced to cancel an offering of Revlon stock last year after investors turned up their noses. And rumors persist he's dolling up the company so he can sell it off.

NICE DEAL. Perelman denies such talk--and he doesn't seem to need the cash. In February, his company MacAndrews & Forbes Holdings Inc. sold First Gibraltar Bank, the ailing chain of Texas savings and loans it bought in 1988, to Bank-

America Corp. for $110 million. But because of the tax breaks granted by regulators in the S&L bailout--breaks Perelman used to offset gains at his other companies--he made $1 billion from First Gibraltar, says analyst Frank W. Anderson of Stephens Inc. in Little Rock. Add to that $1.1 billion he made selling Revlon's Betrix and Max Factor brands to Procter & Gamble Co. in 1991, and he has amassed quite a war chest.

For the past six months, Perelman has been doling it out. He spent $100 million to buy 52% of SCI Television Inc., a TV station chain owned by Vail (Colo.) developer George N. Gillett. He paid $300 million to raise his stake in Marvel Comics from 60% to 80%, and spent an undisclosed sum to buy 50% of Genesis Entertainment, a Los Angeles production and syndication company. He put $100 million into Revlon. And in March, Perelman spent $180 million to buy back Consolidated Cigar Corp. from Vestar Capital Partners Inc., which bought the company from him in 1988 (table).

But Perelman's passion--and maybe his millstone--remains Revlon, which accounts for more than half his empire's revenues. Last year, he tried to spin off 11 million shares, or 18% of Revlon, at roughly $18 to $20 per share. But investors were wary, even though the spring 1992 prospectus projected sales would jump 17%, to $1.7 billion in 1992, and that operating losses would shrink to $24.3 million from $242 million in 1991.

It turns out the investors were right. Sales rose just 11% in 1992, and Revlon reported an $82.6 million operating loss, more than three times worse than the prospectus anticipated. Revlon's 1993 results don't look any brighter. For the quarter ended Mar. 31, sales fell 4%, to $350 million, while operating income dropped to $2 million, from $14 million before a $163 million restructuring charge in the first quarter of 1992.

Revlon says sales sagged after it closed a factory in New Jersey and had trouble shipping fragrances. The August bankruptcy of a big Revlon retailer, the Phar Mor drugstore chain, didn't help. Meanwhile, CEO Jerry Levin concedes that Revlon has a long way to go. "I'm not at the point where I want to be," he says. "It's clearly evolutionary."

Trouble is, Revlon has been evolving for a long time. When Perelman bought it, Revlon was in a wide range of markets. The less expensive Revlon line sold in drugstores and supermarkets, and produced excellent margins. But expensive department-store lines, such as Princess Marcella Borghese, didn't. Perelman brought in Levin, then a top executive at his Coleman Co. with no experience in cosmetics, to take over from longtime Revlon executive Sol Levine.

QUIET EXIT. Levin proposed that Revlon exit the department-store business, take the funds spent on print advertising and in-store promotions and go directly to TV to appeal to a younger audience. Perelman personally chose supermodels Claudia Schiffer and Cindy Crawford to be Revlon models and spokeswomen. Meanwhile, Levin took Ultima II, the one expensive line left, out of upscale stores and started selling it through J.C. Penney and Dillard's. He launched a plan to coordinate Revlon's marketing worldwide, cut the work force from 35,000 to 17,000, and replaced President Michael M. Hammond with George Fellows, a former Revlon executive who became a top executive at Colgate Latin America.

The focus on mass-merchandising may yet pay off, but it will require a big investment in marketing. And some Perelman watchers say that Revlon's years of high debt left it with a legacy of underinvestment in marketing and product development. "For a long period of time, the company was so highly leveraged it had to devote its financial resources to debt service requirements," says Carol Goodwin Fuller, a fixed-income analyst at Moody's Investment Services Inc. Interest payments are down from $153 million in 1990, but they still soaked up $94 million in 1992.

For their part, Revlon executives point to recent market-share gains in everything from lipstick to eyeliner. They say they're stepping up product launches, and have hiked ad spending. Dolly Parton agreed to promote her own line of Revlon fragrance and cosmetics through infomercials, and Perelman himself is proud of an ad featuring country singer Trisha Yearwood touting Revlon's new fragrance, "Wild Heart."

Through it all, Perelman is staying intimately involved in the details of Revlon's business. Before the company launched its new Outrageous shampoo earlier this year, for example, he made product managers redesign the packaging and reformulate the shampoo several times. And he insists he's reveling in Revlon, no matter what the critics say. "I am thrilled with the progress we've made," says Perelman. "And I am the only one that matters."

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