Putting Too Good A Face On Revlon?

Just what is Revlon worth in a public offering? Revlon won't comment, but sources close to Revlon maintain its value is $4.7 billion. Here's how it's calculated: Assume that Revlon is similar to four other publicly traded, personal-care-product companies: Gillette, International Flavors & Fragrances, L'Oreal, and Procter & Gamble. Now, take two yardsticks for determining value: the multiple of sales and the multiple of cash flow that each company's stock trades at. The highest of the four, IFF, trades at 3.87 times sales. The average of the four is 2.63. Then, take IFF's multiple together with the 2.63 and average them, which yields 3.25. Apply that to Revlon's estimated 1995 sales of $2 billion. The result: $6.5 billion. Do the same for cash flow, where Gillette is the top multiple, at 14.6, and you'll get $2.9 billion. Averaging these two measures yields $4.7 billion.

This method seems misguided. Averaging the mean and the maximum multiples biases the results upward. Moreover, it seems optimistic to compare Revlon with Gillette and IFF: Both have a virtual lock on their markets. Sure, one investment banker justifies the use of the maximum multiples because this year Revlon is growing faster than Gillette. But one year doesn't make a trend, especially in highly volatile cosmetics. A more conservative comparison is L'Oreal, the French cosmetics outfit. Using L'Oreal's multiples, Revlon would fetch $2.7 billion. Indeed, one non-Perelman investment banker comes up with the same figure.

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