Perelman, Ronald Owen

(1943-)
Revlon Group, MacAndrews
& Forbes

Overview

Ronald Perelman is in the business of creating wealth. He buys undervalued companies, focuses on their core products, sells off unprofitable operations, and uses the remaining assets and improving cash flow to buy more ailing companies. In 1988 Perelman joined the ranks of the nation's foremost takeover giants after securing control of Revlon, one of the world's best-known cosmetic firms. The worth of Perelman's financial empire is in constant flux, but at times has been as high as $7 billion. His personal worth is estimated by Business Week to be close to $5 billion. The cigar-smoking Perelman, who would prefer to remain unrecognized, inconspicuous, and generally forgotten about, has fought a losing battle in his efforts to remain out of the public spotlight. He has been ranked several times as among the top five richest men in the world.

Personal Life

Ronald Perelman was born in Greensboro, North Carolina in 1943, the first of two sons of Raymond and Faith Perelman. His father, the son of a Lithuanian immigrant, owned and operated Belmont Industries, a metal-fabricating firm in Philadelphia, Pennsylvania, which served as a holding company for several other businesses based in Pennsylvania. Perelman attended the Haverford School outside of Philadelphia and upon graduation enrolled in the University of Pennsylvania, where he received a BA in economics (1964) and an MBA from the Wharton School of Finance (1966).

At the age of 21, Perelman married Faith Golding, a member of a wealthy New York City real estate family. They had four children and were married for nearly 20 years before divorcing. In 1985 Perelman married television entertainment reporter Claudia Cohen; they had one daughter, then divorced. Perelman's first divorce cost him $8 million; his second divorce cost him $80 million. The third time he married, in 1994, bride Patricia Duff agreed to sign a prenuptial agreement. Duff was made president of Perelman's philanthropic Revlon Foundation and redecorated all four of Perelman's houses. According to Los Angeles Magazine, Perelman's residential property at the time included a 57-acre estate in East Hampton, an 18-acre estate in Palm Beach, a house in Bel-Air, and three adjacent townhouses on East 63rd Street (one served as the office for his holding company, MacAndrews & Forbes). Perelman and Duff had one daughter and then divorced.

As a wealthy, somewhat paranoid billionaire, Perelman is never seen in public without his bodyguards. He is frequently photographed at social events, but rarely speaks to the press. An active member of the Orthodox Fifth Avenue Synagogue, Perelman keeps a kosher household and does not work on Saturday. He has made generous donations to Princeton University and to the University of Pennsylvania. The Revlon Group Foundation and the MacAndrews & Forbes Foundation distribute philanthropic donations amounting to nearly half a million dollars every year.

Career Details

Beginning at a very young age, Ronald Perelman was a frequent visitor at his father's holding firm, Belmont Industries. He was eleven when he attended his first board meetings, and often traveled with his father to inspect companies being considered for acquisition. When he was in high school, Perelman spent his vacations studying balance sheets and reading annual reports. He entered a full-time apprenticeship at Belmont Industries in 1966, but after 12 years of working for his father Perelman decided to move to New York and start his own business.

Taking the advice of a business broker, Perelman's first deal on his own, using a bank loan, was the purchase for $1.9 million of 40 percent of a jewelry retailer and distributor, Cohen-Hatfield Industries. Most of the company's assets were sold, but Perelman retained the profitable wholesale watch distribution business. Two years later, he purchased a controlling interest in MacAndrews & Forbes, a company that dealt in licorice extract and chocolate, for the price of $50 million. The company's chocolate operations were immediately sold for $45 million, putting Perelman in a position to repay the loans taken out to purchase the company. To boost profits, he sought out new sources of licorice in areas more stable than the company's suppliers in Iran and Afghanistan, and added spices to the product line that were easily acquired in the same areas that produce licorice roots. By 1983 Perelman was able to buy all shares of MacAndrews & Forbes not under his control. Perelman turned the now-private MacAndrews & Forbes into his first holding company.

In 1983 Perelman bought Technicolor, the company that gives vivid color to many Hollywood films. Five divisions of Technicolor were immediately sold for $68 million. Within five years, the remaining divisions had increased their yearly profit from $3.4 million to $100 million. In 1984 Perelman purchased Consolidated Cigar and a videocassette duplicator named Video Corporation of America. Perelman's move to acquire Revlon began with the 1985 purchase of a controlling interest in Pantry Pride, a Florida-based chain of supermarkets that wanted to buy Revlon. The beauty company had faded in the face of stiff competition and waning enthusiasm from department stores, which were no longer stocking the product line. By selling off Pantry Pride's assets, Perelman was able to finance the purchase of Revlon's outstanding shares. In an effort to block the takeover, Revlon accepted a $900 million offer for the cosmetics business from a New York investment company, then allowed a management buyout corporation to purchase the total of Revlon's non-cosmetic holdings for about $1.4 billion. A Delaware judge, who ruled that the deal was not in Revlon's shareholders' best interests, disallowed these sales. The Delaware Supreme Court upheld the ruling, and on November 5, 1985, at a price of $58 per share totaling $2.7 billion, Revlon was sold to Pantry Pride. Perelman then gave the name of Revlon Group to the former Pantry Pride.

Perelman immediately sold Revlon's non-cosmetic holdings and recovered $1.5 billion of his borrowed funds. He successfully persuaded most large department stores to give Revlon the exposure it once had. He purchased Max Factor and the cosmetics and fragrance lines of Yves Saint Laurent, and he directed that Revlon lipsticks and nail enamels be reformulated and that bottles and packages be redesigned. To gloss up the company's image, Perelman hired famed beauty photographer Richard Avedon, whose portraits of seductive women ran in advertisements with the tag line, "The world's most unforgettable women wear Revlon." Within five years, Revlon was back in the number one spot in mass color cosmetics.

The Revlon story was repeated with Perelman's purchase of Sunbeam (small appliances and Coleman camping gear) and National Health Laboratories. He also bought troubled savings and loans, attractive purchases that came with billions of dollars of government aid. The money-losing First Nationwide Bank was purchased in 1988 from Ford Motor Co., turned into a profitable business, then ten years later folded into Glendale Federal, a $2.8 billion deal that created the nation's third largest savings and loan, with $51 billion in assets.

In 1990 Perelman bought New World Productions. To secure more airtime for New World's productions, he acquired 54 percent of SCI Television. After accepting a $500 million investment from Rupert Murdoch's News Corp., he announced that New World would switch all existing affiliations to Murdoch's Fox Broadcasting Co. Broadcasting & Cable describes the resulting ramifications: "68 stations in 33 markets ended up swapping affiliations, while the Big Three networks [ABC, NBC, CBS] were forced to pony up an additional $250 million in annual compensation costs to prevent further defections."

Chronology: Ronald Owen Perelman

1943: Born in Greensboro, North Carolina.

1964: Received BA from University of Pennsylvania.

1966: Received MBA from Wharton School of Finance.

1966: Entered apprenticeship at Belmont Industries.

1978: Moved to New York and started his own business.

1980: Purchased controlling interest in MacAndrews & Forbes.

1983: Purchased Technicolor.

1985: Purchased Revlon.

1986: Failed to secure ownership of Gillette.

1990: Purchased New World Productions.

1997: Lost control of Marvel Entertainment Group.

Although his success rate is very high and his acquisitions have reached into many disparate industries, Perelman's reputation as a corporate raider brought him some disappointments. In 1986 he was unable to secure majority ownership of Gillette, then sold the stock he was holding back to the company for a $39 million profit. Called "greenmail," this kind of profit further tarnished Perelman's reputation. In 1997 he lost control of Marvel Entertainment Group because, according to Hoover's Online, "he financed the company with debt backed by the company's stock." More than a 1,000 bondholders accused Perelman of transferring money to his other entities so Marvel could file for bankruptcy, a move that would allow him to wrestle control away from the bondholders. In a 1998 court ruling, Perelman lost control of the company. The structure of Perelman's holding companies has allowed him to reap enormous tax benefits while limiting the legal liability of his holding companies. In fact, a net operating loss is attractive to Perelman in any new acquisition because it can be used to offset profit in the prosperous companies he owns. According to Business Week, Perelman "limits his holding-company debt to 20% of the equity value of all of his companies. Perelman figures his companies grow around 20% a year and his debt costs him only about 10%, so he's sitting on a money machine."

Social and Economic Impact

Corporate raiders with billion-dollar war chests and the desire for deal making have taken on an increasing presence in twentieth-century economics, but few have moved up the takeover ladder as quickly and as aggressively as Ronald Perelman. In 1995 Business Week assessed Perelman's holdings: "He has considerable debt outstanding at two levels: Bonds issues by the holding companies that own the operating companies and bonds issued by the operating companies themselves. Changing economic conditions, such as recessions or high interest rates, could jeopardize Perelman's ability to grow. Perelman says that his debt level is conservative: 'We could sell any one of six assets and completely eliminate our holding-company debt overnight.'"

Junk bonds from the investment-banking firm Drexel Burnham Lambert were used in Perelman's buyout of MacAndrews & Forbes and his hostile takeover of Revlon. (Junk bonds offer interest rates to investors that are three to four percentage points higher than U.S. Treasury bonds, but they also come with increased probability of default.) Drexel employed the high-profile Michael Milken, whose specialty was corporate bonds. Drawing upon a huge network of federally insured savings and loans, he was able to turn over large sums of money while earning unusually high commissions and equity in the companies he was funding. Although more than 35 percent of the bonds were defaulting, Drexel was not putting money aside to cover the defaults. When Milken's empire collapsed, more than 50 Drexel-controlled savings and loans also went bankrupt. American taxpayers had to make up the $50 billion in losses to depositors. The Securities and Exchange Commission eventually indicted Milken on 98 felony counts; he served less than two years of a ten-year sentence before being released from prison.

According to Ronald Perelman, Drexel made capital available to a whole segment of the business community that had never had access to investment capital. He told Cigar Aficionado that Drexel had "...resources beyond anybody's wildest imagination. And I think that this in and of itself concerned a lot of people. It concerned corporate America; I think it concerned some of the political structure... there was a lot of fear created about what was going on in the country, and in large part, the fears were focused on Michael and the product he created.... But America is not about legislating economic success. I mean, you might tax it, but don't legislate against it. This country has been built in large measure by the entrepreneurs who came out with either a concept, or an idea, or a product, or a way of doing business."

Sources of Information

Contact at: Revlon Group, MacAndrews & Forbes
c/o MacAndrews & Forbes Holdings Inc.
35 E. 62nd St.
New York, NY 10021
Business Phone: (212)688-9000

Bibliography

"Bank Sues Perelman for Holders of Bonds Totaling $900 Million." Wall Street Journal, 11 December 1997.

Hast, Adele, ed. International Directory of Company Histories. Chicago: St. James Press, 1991.

"MacAndrews & Forbes Holdings Inc.: Hoover's Company Profiles." Hoover's Online, 9 June 1998. Available at www.hoovers.com/premium/profiles/40291.html.

McClellan, Steve. "Perelman Didn't Mean to Start a Revolution." Broadcasting & Cable, 17 April 1995.

Peers, Martin. "Perelman's New Showbiz Vision Makes Street Wary." Variety, January 1998.

"Ronald Perelman." 1991 Current Biography Yearbook. New York: H. W. Wilson Co., 1991.

"Ronald Perelman." Newsmakers: The People Behind Today's Headlines, 1989, Issue 2. Detroit, MI: Gale Research, 1989.

Shah, Diane K. "Beauty and the Billionaire." Los Angeles Magazine, December 1996.

Shanken, Marvin R. "Ron Perelman." Cigar Aficionado, Spring 1995. Also available from http://www.cigaraficionado.com/cigar/aficionado/librarie.html.

Sosnoff, Martin. "Greed, Audacity and Timing: Perelman's Sleight of Hand in the Consolidated Cigar Offering Is Pure Houdini." Forbes, 23 September 1996.

Spiro, Leah Nathans, and Ronald Grover. "The Operator: An Inside Look at Ron Perelman's $5 Billion Empire." Business Week, 21 August 1995.

Stein, Benjamin J. A License to Steal: The Untold Story of Michael Milken and the Conspiracy to Bilk the Nation. New York: Simon & Schuster, 1992.