Ron Perelman’s lowball offer deserves skepticism

June 15, 2011

By Lisa Lee
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Shareholders in M&F Worldwide shouldn’t rush to take Ron Perelman’s latest deal. The billionaire wants to buy the 57 percent of the company he doesn’t already own. His offer includes a premium, but the shares traded higher until recently. With M&F Worldwide’s boss involved in running Perelman’s investments too, skepticism is warranted.

Printing checks for financial institutions goes against the tide of technology. So even with the odd counterweight of its licorice extracts business, M&F Worldwide might be expected to post declining sales. But its first-quarter results, unveiled on May 5, showed a sales drop of 5.2 percent from the previous year, far sharper than the 1.7 percent decline for 2010 as a whole. Earnings shrank by even more. And M&F Worldwide’s shares have steadily slipped since, losing 30 percent by June 10.

So if nothing else, Perelman’s swoop, through his MacAndrews & Forbes investment vehicle, is opportunistic — his offer at a 41 percent premium to Friday’s closing price only brings his target’s valuation back to near where it was in early May. That’s a multiple of barely 5.3 times the last 12 months’ EBITDA, less than the trading multiple of peer RR Donnelley & Sons.

But it muddies the water that Perelman effectively controls M&F Worldwide already. Not only does MacAndrews & Forbes have three board seats, one occupied by Perelman, but Barry Schwartz, the top executive at MacAndrews & Forbes other than Perelman himself, is also the target company’s chief executive.

Even though Perelman wants a special board committee of independent directors to evaluate his offer and then a vote of the other shareholders, investors might consider the Revlon example. Shareholders exchanged common shares of the cosmetics firm for a new class of preferred stock in the fall of 2009, gradually adding to Perelman’s ownership stake. Just weeks later Revlon posted results that sent shares skyrocketing. Despite the involvement of independent directors, some investors cried foul.

With M&F Worldwide’s shares flatlining for two days at the offer price, it looks as though shareholders are inclined to take Perelman’s offer. They may eventually feel they have little choice. But they should make sure they ask some skeptical questions first.

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