Last time we checked in on billionaire Ron Perelman, he was busy firing, furloughing, or losing people at his holding company, MacAndrews & Forbes, and trying to sell as many of his assets that aren’t tied down as possible. The question, of course, is why a guy who was once worth nearly $20 billion and is now listed by the Bloomberg Billionaire’s Index as still worth $7.6 billion is acting like he’s closing up shop after some 40 years as a prominent Wall Street wheeler-dealer.
There is no shortage of theories, of course.
There have been questions raised by those who know him about his physical health, what with COVID-19. Some cite as evidence that the 77-year-old mogul is slowing down the fact that after 10 years, Perelman last August ended his annual boffo fundraiser for the Apollo Theater at his massive Hamptons estate, the Creeks. But that notion seems to have been debunked. “It’s not health,” says someone who knows him well. “It’s not health.” He has good genes. His father, Raymond, lived to be 101.
Then there have been the inevitable questions about his financial health. “It’s financial troubles,” says the person. And another adds, “This guy is going bankrupt, I’m told. Like it’s quite a big thing and a thing no one has written about.” (A source familiar with Perelman’s finances says, “There is no danger of him going bankrupt.”) Perelman also happens to be busy shedding people at MacAndrews & Forbes. He recently ousted the holding company’s chief financial officer, Paul Savas, and both its general counsel, Steve Cohen, and Josh Vlasto, its head of communications, left for new opportunities. Cohen’s deputy, Michael Bosworth, also left in July for a private law firm. (Fran Townsend, a longtime MacAndrews & Forbes executive, has assumed Cohen’s duties.) But the departures at MacAndrews & Forbes go deeper than these four senior executives. One source tells me Perelman also furloughed “hundreds of employees” in and around June—meaning they intend supposedly to bring people back at some point—and then cut off their health care benefits in the middle of the pandemic. That’s “a true, bad guy thing,” this person says.
MacAndrews & Forbes is a private company and Perelman is its 100% owner. There is debt at the MacAndrews & Forbes level, I’m told, but how much, who the lenders are, and when that debt comes due is anyone’s guess. None of the MacAndrews & Forbes debt shows up on the Bloomberg terminal and the hedge fund crowd that normally would be expected to know about the debt, or trade it or buy it, is equally clueless. His outside spokesman at Rubenstein declined to provide details about the debt Perelman owes at the MacAndrews & Forbes level. But someone familiar with Perelman’s finances says that Bloomberg’s calculation of Perelman’s net worth—the $7.6 billion—is misleading because it doesn’t account for the money he owes and is coming due at the holding company. A closer examination, this person says, will show “that $7 billion is not quite right.” So let’s take that closer look.
First, there is Revlon, the cosmetics giant that Perelman has owned since 1985 and is run by his daughter Debra. He now owns about 87% of the stock of the company, worth around $375 million these days. Perelman hired Goldman Sachs to sell the company last year and, according to a recent filing with the Securities and Exchange Commission, Goldman is still working it, although who the credible buyers are is not exactly clear. In May, Revlon completed a $1.8 billion senior debt refinancing, designed to give the company more breathing room with its lenders. It’s also in the middle of a coercive exchange offer on $500 million of its senior notes, designed essentially to push out the time frame on when the debt is paid back rather than any meaningful debt reduction. In an August 5 note, Moody’s estimated Revlon’s debt at $3.6 billion and continues to rate it in the “junk” category, meaning the risk is high that the debt gets paid back. “Revlon continues to incur a meaningful cash burn and we continue to view leverage and the capital structure as unsustainable,” Moody’s wrote. It estimated that because of Revlon’s “cash burn” and “earnings deterioration”—offset by modest debt reduction from the refinancing—the company’s financial risk will increase materially. “We estimate that pro-forma debt to EBITDA will be 14x based on the post transaction debt structure outlined in the company’s offering memorandum [for the exchange offer]—a level that is higher than 12.7x for the twelve-month period ended March 31, 2020,” Moody’s wrote. “We estimate debt to EBITDA will reach a high of 18x over the next 12 months.”
On Revlon’s August 6 earnings call, Bill Kavaler, at Litespeed Management, an investment management company, wondered what the company’s plan was to address its capital structure. “It seems like you are just kind of bouncing from one near crisis to the next,” Kavaler said, according to the transcript of the call. In response, Victoria Dolan, Revlon’s chief financial officer, said, “We are hyper-focused right now on our liquidity on ensuring that we have the operating cash that is sufficient for the balance of the year and into next year.” She said Revlon was also “hyper-focused” on completing the exchange offer on the senior notes and was “always in conversations” with other lenders to “optimize that capital structure and deal with upcoming maturities as they come due. But right now, our focus is on ensuring operating cash flow given the uncertainty we have today.”
Other companies in Perelman’s dwindling portfolio have already changed hands. For instance, in July, he sold his 70% stake in AM General, the maker of the Humvee, to the private equity firm KPS Capital Partners “at a fire-sale price,” according to what “insiders” told the New York Post. He had been seeking $2 billion for the company when he put it up for sale two years ago, the Post reported, but ended up getting “less than $1 billion,” about what he paid for the company in 2004. (He has reportedly pulled plenty of money out of AM General over the years in the form of dividends; Rubenstein declined to provide information on the sale proceeds.)
Perelman has also parted with Deluxe Entertainment, the postproduction film services company that he’s owned for years. Loaded with more than $1 billion in debt, the company’s creditors took control of Deluxe Entertainment late last year in a prepackaged bankruptcy. In June, Perelman sold two longtime businesses he owned—Merisant, a tabletop manufacturer of noncaloric sweeteners, and MAFCO, a manufacturer of natural licorice products—to a special purpose acquisition corporation that has since been renamed Whole Earth Brands. According to a December 2019 press release, Perelman sold the two companies for a total of $510 million comprised of $450 million in cash and 6 million shares of Whole Earth Brands stock (now worth around $45 million). Perelman also said in July that he wants to sell his 39% stake in Scientific Games, a maker of casino games, that is now worth around $745 million. The company, with $9.3 billion in long-term debt, has had a rough go of it during the COVID pandemic, as traffic at casinos has dwindled. For the first six months of 2020, Scientific Games had a net loss of $353 million, down more than threefold from the company’s $100 million loss for the first six months of 2019.
Along with Revlon and Scientific Games, Perelman also owns a nearly 30% stake in Siga Technologies, a pharmaceutical company, worth around $166 million, and an 85% stake in vTv Therapeutics, a biopharmaceutical company, worth around $150 million. He also owns 100% of something called Vericast—the renamed parent company of a bunch of marketing solutions and payment services companies, including Valassis, Harland Clarke, RetailMeNot, and QuickPivot. According to the Wall Street Journal, Vericast has nearly $3 billion of debt, including $800 million of 8.37% secured bonds due 2022. The bonds traded as low at 57 cents in mid-April, according to the Journal, implying a high risk of bankruptcy. (The bonds have since recovered, along with the capital markets generally, to around 80 cents on the dollar, according to the Bloomberg terminal.) In a February, pre-COVID note, Moody’s was concerned about the financial risks at Vericast, the debt of which Moody’s rates “junk.” (It was still then known as Harland Clarke.) Moody’s worried that Vericast’s “business model” was “in secular decline” because it was in both the check-printing business and the print-based advertising business. Also, Moody’s wrote, “the acquisition of RetailMeNot Inc. continues to struggle,” while noting that “management has successfully undertaken cost management initiatives to improve EBITDA.”
None of this bodes particularly well for Perelman and calls into question Bloomberg’s peg of his $7.6 billion net worth. By my rough calculations, Perelman’s various asset sales and remaining equity stakes add up to around $2.75 billion, not including the equity value of Vericast, whatever that might be if anything, and excluding the unknown debt at MacAndrews & Forbes. My calculation also excludes his array of valuable toys, and whatever cash he has hauled out of these companies over the decades, which is likely substantial. But before we feel too sorry for Perelman, it’s important to remember he still owns some nearly irreplaceable assets, including a world-class art collection—although on July 28 he sold two paintings at a Sotheby’s auction for roughly $37.2 million—his massive palazzo on East 62nd Street, a 257-foot-yacht, and the Creeks, among others.
Just where Perelman nets out is difficult for an outsider to know for sure. Even people who know him well are scratching their heads. “It’s hard to say what’s in his head,” says one. “I think that these sales are necessary and required, and the reduction in staff is required.”
In a rare, unusually personal statement to Vanity Fair, Perelman wrote in an email, “I have spent my entire career making deals and have been through tough cycles before, and while this is certainly a challenging time, it is just that. This period has given me the space to think carefully about myself and my business, and to reset my priorities. It gave me a point of view I’ve never had before. I realized a less complicated and less leveraged business life, would allow me to focus on what I love most about MacAndrews & Forbes Inc., seek new investment opportunities, as well as allow me to have better and more present time with my family. With that in mind, we are evolving M&F. We’ve streamlined operations and are now exploring selling some assets. The changes we’re making strengthen M&F and make it more flexible for years to come. Over the past six months I’ve been mostly at home like most New Yorkers. A simpler life, with less running around and more time with my family, including homeschooling our youngest children, has energized me and taught me new things. For the future, I will spend my time more with my family and all my children, seeking new investment opportunities, and running our [p]ortfolio companies.”
Ladies and gentleman, Zen master Ron Perelman.
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