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MacAndrews & Forbes Holdings Inc.

MacAndrews & Forbes Holdings Inc.

35 East 62nd Street
New York, New York 10021
U.S.A.
Telephone: (212) 572-8600
Fax: (212) 572-8400
Web site: http://www.macandrewsandforbes.com

Private Company
Incorporated:
1983
Employees: 19,800
Sales: $5.7 billion (2004 est.)
NAIC: 311930 Flavoring Syrup and Concentrate Manufacturing; 323116 Manifold Business Forms Printing; 32562 Toilet Preparation Manufacturing; 333991 Power-Driven Handtool Manufacturing; 336112 Light Truck and Utility Vehicle Manufacturing; 555112 Offices of Other Holding Companies; 561611 Investigation Services

MacAndrews & Forbes Holdings Inc. is a holding company controlled by controversial tycoon Ron Perelman. Starting in 1978 with a loan of less than $2 million, Perelman assembled a portfolio that, in little more than a decade, made him one of the wealthiest individuals in the country. Perelman used the economic tools so popular in the 1980sincluding hostile takeovers, leveraged buyouts, and junk bondsto establish and expand his personal empire. He continued dealing at a frenetic pace in the 1990s, most prominently collecting and then disposing of media companies. By the end of the decade he held, through MacAndrews & Forbes, substantial interests in a number of operating companies, including Revlon Group Inc. and Sunbeam Corporation.

More recent investments have included the small biotech Siga Technologies and the security firm Allied Security. These holdings were augmented by the 2004 purchases of a controlling interest in AM General, producer of the HUMMER vehicle, and Deluxe Film. The next year, the companys M&F Worldwide subsidiary added to its traditional licorice and flavorings business by buying check printers Clarke American and Harlan.

ERECTING AN EMPIRE: 197889

The eldest son of a wealthy Philadelphia businessman, Ronald Owen Perelman studied business administration at the University of Pennsylvanias Wharton School before becoming an executive in his fathers company, Belmont Industries. Working for this conglomerate proved an ideal training ground for what the younger Perelman would do so well: create personal wealth by purchasing undervalued companies, paying for the acquisitions by selling underperforming segments of these businesses.

Since his father showed no foreseeable desire to retire, Perelman, at the age of 35, resigned his post in 1978 to pursue his career in New York City. He brought with him his first wifes fortune as well as his own considerable savings. Perelmans initial move was to purchase, for $1.9 million borrowed from a bank, a 40 percent interest in Cohen-Hatfield Industries, a jewelry business. He sold all the companys operations except the most profitable one, its wholesale watch distribution division, and, after repaying the purchase price, pocketed a $15 million profit.

Next Perelman purchased, in 1980, MacAndrews & Forbes Co., a firm dating from 1850 that was the worlds leading manufacturer of licorice extract, sold principally to the tobacco industry for flavoring in cigarettes. The company also was a bulk chocolate wholesaler. The purchase, for about $45.7 million, was made through Cohen-Hatfield, which was then merged into what became MacAndrews & Forbes Group Inc. A consortium of banks provided $35 million for the acquisition and was repaid with the proceeds from selling high yield company bonds. Perelman sold the chocolate part of the business in 1986 for about $45 million.

In January 1983 Perelman purchased Technicolor Inc., the company whose photo color process had long been used in motion pictures, for $102 million plus the assumption of $17 million in debt. This acquisition challenged MacAndrews & Forbess own creditworthiness, but Perelman quickly sold five divisions, reducing the cost of the purchase by $68 million. Aided by the advent of multiplex theaters, Technicolor, like other film processors, soon entered a boom period; in 1988 Perelman sold his controlling interest in the company to Carlton Communications for $780 million. Perelman bought 20 percent of a similar firm, Compact Video Inc., in 1983 for $12.5 million realized from the sale of Technicolor divisions and by the end of 1987 had raised the MacAndrews & Forbes stake in this company to 40 percent.

Perelmans first wife sued for divorce in 1983, claiming part ownership of everything her husband owned. To protect his assets, Perelman announced he would take MacAndrews & Forbes Group private by making it a subsidiary of newly formed MacAndrews & Forbes Holdings Inc. The new company, installed in Perelmans East Side Manhattan townhouse, borrowed against its assets to buy the 66 percent of the shares of MacAndrews & Forbes Group that Perelman did not own. Nine separate shareholder suits were fielded against the plan, but the company became fully his in March 1984.

To finance the assumption of $52.7 million in debt, Perelman turned to Michael Milken, the Drexel Burnham Lambert financier who would soon become famous as Wall Streets junk bond king. Since angry MacAndrews & Forbes shareholders were unwilling to accept company bondseven high yield onesfor their stock, Milken agreed to sell the bonds to Drexel clients for cash that was used to pay off the stockholders. It was a tactic that Perelman and Milken would use over and over again.

MacAndrews & Forbes Holdings quickly took on new debt by purchasing Consolidated Cigar Holdings Ltd., the largest U.S. cigar producer, from Gulf & Western Industries in 1984 for $124 million, only $15 million of it in cash. Also in 1984, Perelman bought a controlling interest in Video Corporation of America, a tape duplication and stage rental firm, for $33.3 million, putting it under the Technicolor banner.

Perelman next took aim on Pantry Pride Inc., a poorly run retailer whose attraction was tax loss carryovers totaling at least $330 million that could be used to offset income from profitable MacAndrews & Forbes holdings. A $60 million purchase of preferred stock gave him effective control of this company in June 1985. Within months, all three chains under the corporate umbrella were liquidated, leaving Pantry Pride a corporate shell for Perelmans biggest target yet: Revlon.

COMPANY PERSPECTIVES

MacAndrews & Forbes is a holding company with interests in a diversified portfolio of public and private companies. Wholly owned by Chairman and Chief Executive Officer Ronald O. Perelman, MacAndrews & Forbes Holdings Inc. invests in companies with strong market positions, recognized brands and growth potential. By focusing on a companys core business, MacAndrews & Forbes helps nurture and build the business to new levels of performance and success. Current holdings include leading participants across a wide range of industries, from cosmetics and entertainment to biotechnology and security.

Assembling $761 million worth of high interest bonds underwritten by Milken and a $500 million bank loan, Perelman attempted, through Pantry Pride, a takeover of the world famous cosmetic company, which was also engaged in pharmaceuticals and health and eye care. Revlons management fought the offer furiously but eventually capitulated, in October 1985. The price was heavy: at least $2.7 billion, when factoring in debt refinancing, income taxes, severance pay, and compensation for lawyers and investment bankers. Pantry Pride disappeared in 1986, becoming Revlon Group, Inc. The following year Perelman took the company private, selling newly issued MacAndrews & Forbes junk bonds through Drexel Burnham Lambert to buy out the other shareholders for $784 million.

While keeping the cosmetics division intact, Perelman already had sold two Revlon divisions for a total of more than $1 billion. In 1987 he sold Revlons vision care business for $574 million more. Another Revlon division, National Health Laboratories, became a separate public company in 1988. Perelman also beefed up Revlon by purchasing cosmetic lines such as Max Factor in 1987 for a total of $500 million and Betrix, a German firm, for $170 million in 1989. The cigar-smoking magnate sold a division of Consolidated Cigar for $45 million in 1986 and the rest of the company for $128 million in 1988.

His appetite whetted by the Revlon acquisition, Perelman attempted a hostile takeover of The Gillette Company in 1986, offering $4.12 billion for the company. After pocketing a profit of at least $34 million in selling back to management his 16 percent share of its stock (a payoff critics called greenmail), Perelman made three more offers for Gillette in 1987, raising his bid to $5.7 billion before giving up in the face of managements continued resistance. Perelman also made unsuccessful bids for TV Services and CPC International, then quit attempting hostile takeovers. Instead he began refinancing his junk bond debt with lower-cost bank loans. Writing in 1990, syndicated columnist Allan Sloan, a persistent critic, acknowledged, Perelman was smart enough to use junk bond financing to make his fortune and also smart enough to jump off the junk bandwagon before it crashed.

MacAndrews & Forbes Holdings entered a new area in December 1988, when it agreed to invest $315 million (of which only $171 million was its own cash) in five troubled Texas savings and loan association units. The deciding factor for Perelman was a federal government guarantee of $5 billion to cover future losses over the next ten years. The transaction also allowed him to apply the net operating losses (estimated at $900 million to $1.2 billion) of the acquired institutions, which were consolidated as First Gibraltar Bank, to reduce the taxes of any of his profitable businesses. A sixth Texas savings and loan was added in 1990. MacAndrews & Forbes held 80 percent of First Gibraltar in 1991.

Perelman, who had created Andrews Group Inc. from the corporate shell of the former Compact Video, used this private holding company to purchase Marvel Entertainment Group, holder of such comic book titles as Spiderman and The Incredible Hulk, for $82.5 million in January 1989. Not long after, Andrews bought Marvels parent, film and television producer New World Entertainment Inc., for Andrews Group for between $120 million and $145 million. Andrews, according to Sloan, arguably was being used as a corporate toxic waste dump for unwanted and overpriced businesses. The company, 57 percent owned by MacAndrews & Forbes Holdings, lost $14.8 million in 1989 and had a negative net worth of $10 million. Three shareholders suits accused him of fraud when, in 1990, he successfully pushed through a buyback plan in which shares were repurchased with junk bonds as payment.

Also in 1989, MacAndrews & Forbes acquired The Coleman Company, Inc., maker of stoves, lanterns, and camping and other recreational equipment, for $545 million. Perelman reduced the debt for this purchase by selling the heating and air conditioning divisions. By the end of 1990 he had sold everything except Colemans camping equipment and boat businesses, plus added power tool and recreational vehicle businesses. Between 1993 and late 1995 he bought seven more companies for Coleman.

KEY DATES

1850:
Licorice extract manufacturer MacAndrews & Forbes Company is established.
1980:
Ron Perelman acquires MacAndrews & Forbes through Cohen-Hatfield for $45.7 million.
1983:
Technicolor Inc. is acquired by Perelman in a $119 million deal; MacAndrews & Forbes Holdings Inc. is formed.
1984:
MacAndrews & Forbes acquires Consolidated Cigar Holdings Ltd. in leveraged buyout.
1985:
Revlon is acquired for $3 billion.
1986:
MacAndrews & Forbes chocolate wholesale business is sold for $45 million; the remainder of Consolidated Cigar is sold.
1987:
After three years, Perelman abandons $4 billion bid to acquire Gillette.
1989:
The Coleman Company, Inc., is acquired for $545 million.
1998:
Consolidated Cigar sold for a second time, fetching $531 million; Coleman is sold.
2003:
Company makes investments in security and biotech firms.
2005:
Check printer Clarke American is acquired by M&F Worldwide Corporation.
2006:
Deluxe movie film processing business is acquired.

Institutional Investor s May 1989 issue featured Perelman on its cover and called him the richest man in America, with a personal fortune approaching $5 billion. Forbes ranked him third, estimating his worth at about $3 billion. Yet Perelmans empire was shaky, according to some writers. Forbes s Gretchen Morgenson estimated in 1990 that the assets of MacAndrews & Forbes Holdings exceeded its debts by only $1.3 billion.

FOCUS ON MEDIA COMPANIES: 199095

Perelman enhanced his financial position in 1991 by selling Revlons Max Factor line and Betrix label to Procter & Gamble Company for $1.14 billion, taking Marvel Entertainment public (and selling about 30 percent of the stock), and selling most of his National Health Laboratories stock. In 1995 National Health Laboratories, in which Perelman still held 24 percent of the stock, was merged with Roche Biomedical, another large clinical laboratory, to become Laboratory Corporation of America.

By mid-1992 Perelman was shopping for more companies. In September of that year he purchased, for Andrews Group, trading card and bubble gum company Fleer Corporation, for $265 million. The following year he purchased 46 percent of Toy Biz, Inc., for $7 million. Also folded into Andrews Group, in 1993, was SCI Television, a bankrupt station owner with $1.3 billion in debt for which Perelman paid $100 million in cash in return for a 54 percent stake. Half-ownership of Genesis Entertainment, a television syndicator, was placed into Andrews Groups New World Entertainment unit.

After MacAndrews & Forbes sold 130 First Gibraltar Bank branches to BankAmerica Corporation for $110 million in 1992, Perelmans profit on his savings and loan transactions may have exceeded $1.2 billion. In 1994 Perelman used nearly $500 million in tax credits to buy Californias First Nationwide Bank, the nations fifth largest savings institution, in a deal valued at $1.1 billion. The transaction was made through Dallas-based First Madison Bank, a savings and loan association founded by Perelman in 1993 with assets left over from the First Gibraltar sale.

Boston Whaler Inc., a boat builder, was sold in 1993 to MacAndrews & Forbes by Reebok International Ltd. for $20 million. Perelman added Coleman divisions and boating brands MasterCraft and Skeeter, plus OBrien water skis, to this acquisition and created Meridian Sports Holdings as the corporate umbrella for these companies. Also in 1993, Mafco Holdings, Inc., a Perelman company, purchased Consolidated Cigar again, this time for $180 million (of which only $30 million was cash).

New World Entertainment and SCI Television were merged in late 1993 to form New World Communications Group. This merger into a company 54 percent owned by Perelman in mid-1994 and still reporting to Andrews Group, allowed New World Entertainment, the television producing arm, access to the cash generated by the profitable TV stations. The communications group also included now wholly owned Genesis Entertainment, and Guthy-Renker Corporation, the leading infomercial producer in the United States, in which Perelman had bought a minority interest the previous year. Perelman also bought four more TV stations from Great American Communications for $360 million and four from Argyle Television Holdings for $716 million, financing the purchases with the aid of $205 million from a rights offering and $300 million in credits from a group of banks. Since New World now exceeded the legal limit of 12 TV stations, several were sold.

The reorganization of New World included a deal struck with Rupert Murdoch switching nearly all of the New World stations from CBS affiliation to affiliation with Murdochs Fox Broadcasting Network. Murdoch agreed to invest $500 million in New World in exchange for 20 percent of the stock, to consider New Worldproduced programming for Foxs lineup, and to form a joint syndication arm with New World to supply both station groups with programming.

Another Perelman holding company, named Mafco Consolidated Group, was formed to acquire Abex, a manufacturer of aerospace and industrial products, in 1994 for about $200 million. Since Abex was selling its brake friction division to Cooper Industries for $207.4 million, Perelman got the company essentially for nothing. It joined Consolidated Cigar and Mafco Worldwide Flavors (previously MacAndrews & Forbes Co.) as divisions of Mafco Consolidated Group, which was at least 80 percent owned by Perelman.

Business Week in 1995 calculated that Perelman had bought, since 1978, 44 companies, creating a highly leveraged empire with a net value of $4.93 billion. According to this magazine, the use of separate holding companies limited the overall enterprises legal liability in issuing debt, because the debt was secured by the operating companies. The enterprise at the apex of Perelmans pyramided assets was Mafco Holdings, according to Business Week and a biography of Perelman, but MacAndrews & Forbes, according to the Wall Street Journal and Barrons. The operating companies, according to Perelmans critics, were being milked systematically for the benefit of the holding companies. While Perelman was said to pay his top executives welleach reportedly earning $10 million a yearthey were receiving no equity, leaving Perelman in total control.

STILL BUYING AND SELLING: 199698

After years of floundering, Revlon Inc.s operating income, in 1995, finally exceeded the interest payments on its debts. This enabled Perelman to take the company public in 1996, raising $180 million by selling 15 percent of the shares. New World, on the other hand, was losing money and was close to $1 billion in debt. In 1996 Perelman arranged to sell his 37 percent stake in the enterprise to Murdochs News Corporation for about $2.48 billion in stock and the assumption of $590 million in New World debt. (He had previously sold two stations to NBC for $425 million.) Also in 1996, First Nationwide Holdings Inc. purchased California Federal Bank for $1.2 billion, enabling First Nationwide to create the countrys fourth largest savings and loan association, with 242 branches in California, Florida, and Texas. Consolidated Cigar went public in that year, but Mafco Consolidated retained 65 percent of the shares.

Perelmans reputation as a manager suffered serious damage from the end of 1996 bankruptcy of Marvel Entertainment. Swelled by lucrative licensing deals, the companys stock was trading at $35 a share at the end of 1993, raising Perelmans stake to a value of $2.8 billion on an original cash investment of $10.5 million. In 1995, however, Marvel went into a nosedive, and the following year it lost $464.4 million. Perelmans attempt to refinance the company was frustrated by its bondholders, notably rival entrepreneur Carl Icahn, who rejected the reorganization plan, which called for the creditors to take a substantial loss. Perelman then walked away from his investment (which included a 26 percent stake in Toy Biz), allowing it to fall into bankruptcy. Icahn, who won court approval to take it over, in turn lost control of the company and joined the angry Marvel shareholders and bondholders who were suing Perelman.

According to Barrons, Perelmans Revlon Worldwide holding company had, in May 1997, almost $2 billion in long-term debt and negative stockholders equity of almost $1 billion. Nevertheless, Perelman had raised $900 million in February to refinance Revlon debt coming due, and in May he raised $470 million in loans for Coleman. Other debt payments were reported to have been pushed back beyond 2000, leaving Perelman with more than $1 billion available for another acquisition. Revlon, California Federal, and Consolidated Cigar were said to have generated more than $600 million in profits in 1996 yet apparently paid little or nothing in federal tax due to what Barrons writer Jacqueline Doherty called skillful use of holding companies and tax laws.

Mafco Holdings announced in December 1997 that it was acquiring about 72 percent of Panavision Inc., the leading manufacturer and supplier of cameras to the film industry, for about $610 million. Two months later, Perelmans California Federal Bank agreed to purchase Golden State Bancorp Inc. for stock and warrants valued at as much as $2.8 billion. The combined firm, the nations third largest thrift institution, would be known as Golden State Bancorp but operate under the name California Federal Bank, with Perelman holding a stake of 30 to 33 percent.

In March 1998 Perelman sold his 82 percent share of Coleman to Sunbeam Corporation for stock valued at $590 million to $643 million, plus $160 million in cash. To protect his 14 percent investment in the troubled appliance manufacturer, whose stock value dropped 80 percent on news that it might have overstated its 1997 sales, he took over management of the company in June. By mid-August, Perelmans stock was worth only $72 million. Sunbeam owed creditors about $2.2 billion, including $500 million to one of Perelmans holding companies. (Sunbeam Corporation filed for bankruptcy protection in 2001. It soon reemerged as American Household, Inc., which was bought by Jarden Corporation in 2005.)

The Marvel and Sunbeam fiascos clearly took a toll on Perelmans fortune. In Forbes s October 1998 ranking of the richest Americans, he dropped out of the top 10, with an estimated $6 billion, compared to $6.5 billion in the October 1997 listing, when he was ranked in eighth place. Before the year was out, Perelman again sold Consolidated Cigar, this time for $531 million, almost three times what he paid in 1993. The buyer was a French company, Selta S.A.

SHIFTING INTERESTS IN THE NEW MILLENNIUM

M&F Worldwide, the licorice business in which MacAndrews & Forbes held a 35 percent share, was a bright spot in the Perelman portfolio. A plan to foist off Perelmans 83 percent stake in money-losing Panavision onto M&F Worldwide for four times its market price rankled its other shareholders, however. They successfully sued to overturn the deal in 2002. In the settlement, Panavision was returned to Mafco Holdings.

Another key holding, Revlon, was struggling under a $1.9 billion debt, though a succession of CEOs had been hired to turn the company around. MacAndrews & Forbes, which was one of Revlons creditors, gained more shares in a plan that reduced the debt by about half.

Perceiving opportunity in a fragmented industry, MacAndrews & Forbes bought the SpectraGuard security firm in February 2003 for about $263.6 million. It was renamed Allied Security Holdings, or AlliedBarton Security Services. This unit acquired, for £40 million in August 2006, the U.S. security services business of the multinational company, Rentokil Initial plc.

Toward the end of 2003, MacAndrews & Forbes invested in publicly traded Scientific Games Corporation. It paid $194 million for the 24 percent shareholding owned by a subsidiary of Italys Lottomatica S.p.A. Scientific Games, based in New York, made supplies for lotteries.

Another new investment was a fairly straightforward play on homeland defense. MacAndrews & Forbes and its TransTech Pharma affiliate invested $10 million in Siga Technologies, a small biotech firm that was developing vaccines for biological warfare threats such as anthrax and smallpox.

In 2004, MacAndrews & Forbes bought a controlling interest in AM General LLC, the company responsible for the Humvee military utility vehicle and its HUMMER civilian counterpart. The deal valued AM General at $935 million; the seller, Ira Rennert, had bought it out of bankruptcy a dozen years earlier for $130 million. While Hummers were falling out of fashion among the American public due to their low gas mileage (they were distributed by General Motors), the U.S. military continued to buy them in bulk.

In January 2006, MacAndrews & Forbes closed a deal to acquire the Deluxe film processing and creative services business of The Rank Group plc for $750 million in another highly leveraged buyout. Deluxe was the leader in processing 35mm film for movies.

The M&F Worldwide subsidiary bought Novar USA Inc., the parent company of Clarke American Corporation, in December 2005. M&F Worldwide paid Honeywell International Inc. $800 million for the business, which was the one of the top three printers of checks in the United States.

In 2007 MacAndrews & Forbes was adding to its check printing empire by acquiring John H. Harland Company in a deal valued at $1.7 billion. Since this would combine two of the countrys largest check printers, the transaction needed to clear some antitrust hurdles.

Though Harland and Clarke American had expanded the services they offered banks, printing paper checks was a shrinking industry, as was Deluxes film processing business in the digital age. Nevertheless, these remained profitable ventures.

Robert Halasz
Updated, Frederick C. Ingram

PRINCIPAL SUBSIDIARIES

Allied Security Holdings LLC; AM General LLC (70%); Deluxe Entertainment Services Group Inc.; M&F Worldwide (35%); Panavision; Revlon, Inc. (83%); Scientific Games Corporation (24%); SIGA Technologies Inc. (45%); TransTech Pharma.

PRINCIPAL COMPETITORS

Deluxe Corporation; Estée Lauder Inc.; LOréal SA; The Procter and Gamble Company.

FURTHER READING

Bary, Andrew, Enron and Ron? Sounds Familiar: Perelman May Get His Payoff, Leaving Little for M&F Shareholders, Barrons, February 11, 2002, p. 22.

, Perelmans Price: Panavision Deal Draws Shareholder Suit, Barrons, November 20, 2000, p. 45.

, A Return Visit to Earlier StoriesSour Candy: Deal Halts Battle over Perelmans M&F Ploy, Barrons, August 5, 2002, p. 13.

, Ron Strikes Again: Another Perelman Plan Leaves Shareholders Steaming, This Time at M&F Worldwide, Barrons, April 2, 2001, p. 22.

Beatty, Sally, Revlons Loss Widens, and Cash Runs Low as Debt Takes Its Toll, Wall Street Journal, October 31, 2003, p. B4.

Bryant, Adam, Pow! The Punches That Left Marvel Reeling, New York Times, May 24, 1998, Sec. 3, pp. 1, 10.

Doherty, Jacqueline, Bulletproof Billionaire? Barrons, May 19, 1997, pp. 18, 20.

Furman, Phyllis, Perelmans Tangled Web, Crains New York Business, April 28, 1997, pp. 1, 4044.

Hack, Richard, When Money Is King, Los Angeles: Dove Books, 1996.

Harris, Kathryn, Broadcastings Creators of a New World, Los Angeles Times, June 18, 1994, pp. D1D2.

Laing, Jonathan R., Now Its Rons Turn, Barrons, October 12, 1998, pp. 3132, 3435.

Marcial, Gene G., Eyeing Lucre from Licorice, BusinessWeek, August 12, 2002, p. 111.

, Ron Perelman Gives Siga a Boost, BusinessWeek, November 10, 2003, p. 174.

Morgenson, Gretchen, The Perils of Perelman, Forbes, December 10, 1990, pp. 218220, 222.

Nathans, Leah J., Perelman Is No Superhero to Investors at Andrews, Business Week, July 23, 1990, pp. 5758.

Paul, Peralte C., N.Y. Firm to Buy Harland: Low-Profile M&F Worldwides $1.7 Billion All-Cash Deal for Decatur Check Printing Firm Certain to Face Antitrust Scrutiny, Atlanta Journal-Constitution, December 21, 2006, p. E1.

Pollock, Ellen Joan, and Martha Brannigan, The Sunbeam Shuffle, or How Ron Perelman Wound Up in Control, Wall Street Journal, August 19, 1998, pp. A1, A8.

Ramirez, Anthony, The Raider Who Runs Revlon, Fortune, September 14, 1987, pp. 5763.

Sloan, Allan, How Perelman Pocketed a Cool $1.2 Billion on Sale of S&Ls, Los Angeles Times, September 27, 1992, p. D5.

, Perelman Deal on Andrews Is for Brave Only, Los Angeles Times, May 28, 1990, p. D5.

Smith, Randall, and David Wessel, New Look: The 80s Are Over, and Ron Perelman Positions Himself as an Industrialist, Not a Raider, Wall Street Journal, March 27, 1990, pp. A1, A10.

Spiro, Leah Nathans, and Ronald Grover, The Operator, Business Week, August 21, 1995, pp. 5460.

Steinberg, Brian, Settlement Unravels Perelman Maneuver for Panavision Stake, Wall Street Journal, July 30, 1992, p. C11.

Whiteman, Lou, and Vyvyan Tenorio, Perelman Drives Hummer, Daily Deal, August 11, 2004.

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MacAndrews & Forbes Holdings Inc.

MacAndrews & Forbes Holdings Inc.

35 East 62nd Street
New York, New York 10021
U.S.A.
(212) 688-9000
Fax: (212) 572-8400

Private Company
Incorporated
:1984
Employees :29,854
Sales :$6.07 billion (1997 est.)
NAIC :32562 Toilet Preparation Manufacturing; 333991 Power-Driven Handtool Manufacturing; 335211 Electric Housewares & Household Fan Manufacturing; 336612 Boat Building; 33992 Sporting & Athletic Goods Manufacturing; 52212 Savings Institutions; 555112 Offices of Other Holding Companies

MacAndrews & Forbes Holdings Inc. is the company that holds the assets of Ronald Owen Perelman. Starting in 1978 with a loan of less than $2 million, Perelman assembled a portfolio that, in little more than a decade, made him one of the wealthiest individuals in the country. Perelman used the tools so popular in the 1980sincluding hostile takeovers, leveraged buyouts, and junk bondsto establish and expand his personal empire. He continued dealing at a frenetic pace in the 1990s, most prominently in collecting and then disposing of media companies. In 1998 he held, through MacAndrews & Forbes, substantial interests in a number of operating companies, including Revlon Group Inc., First Nationwide Holdings Inc., and Sunbeam Corporation.

Erecting an Empire: 1978-89

The eldest son of a wealthy Philadelphia businessman, Perelman studied business administration at the University of Pennsylvanias Wharton School before becoming an executive in his fathers company, Belmont Industries. Working for this conglomerate proved an ideal training ground for what the younger Perelman would do so well: create personal wealth by purchasing undervalued companies, paying for the acquisitions by selling underperforming segments of these businesses.

Since his father showed no foreseeable desire to retire, Perelman, at the age of 35, resigned his post in 1978 to pursue his career in New York City. He brought with him his first wifes fortune as well as his own considerable savings. PerelMans initial move was to purchase, for $1.9 million borrowed from a bank, a 40 percent interest in Cohen-Hatfield Industries, a jewelry business. He sold all the companys operations except the most profitable one, its wholesale watch distribution division, and, after repaying the purchase price, pocketed a $15 million profit.

Next Perelman purchased, in 1980, MacAndrews & Forbes Co., a firm dating from 1850 that was the Worlds leading manufacturer of licorice extract, sold principally to the tobacco industry for flavoring in cigarettes. The company also was a bulk chocolate wholesaler. The purchase, for about $45.7 million, was made through Cohen-Hatfield, which was then merged into what became MacAndrews & Forbes Group Inc. A consortium of banks provided $35 million for the acquisition and was repaid with the proceeds from selling high-yield company bonds. Perelman sold the chocolate part of the business in 1986 for about $45 million.

In January 1983 Perelman purchased Technicolor Inc., the company whose photo color process had long been used in motion pictures, for $102 million plus the assumption of $17 million in debt. This acquisition challenged MacAndrews & Forbess own creditworthiness, but Perelman quickly sold five divisions, reducing the cost of the purchase by $68 million. Aided by the advent of multiplex theaters, Technicolor, like other film processors, soon entered a boom period; in 1988 Perelman sold his controlling interest in the company to Carlton Communications for $780 million. Perelman bought 20 percent of a similar firm, Compact Video Inc., in 1983 for $12.5 million realized from the sale of Technicolor divisions and by the end of 1987 had raised the MacAndrews & Forbes stake in this company to 40 percent.

Perelmans first wife sued for divorce in 1983, claiming part ownership of everything her husband owned. To protect his assets, Perelman announced he would take MacAndrews & Forbes Group private by making it a subsidiary of newly formed MacAndrews & Forbes Holdings Inc. The new company, installed in Perelmans East Side Manhattan townhouse, borrowed against its assets to buy the 66 percent of the shares of MacAndrews & Forbes Group that Perelman did not own. Nine separate shareholder suits were fielded against the plan, but the company became fully his in March 1984.

To finance the assumption of $52.7 million in debt, Perelman turned to Michael Milken, the Drexel Burnham Lambert financier who would soon become famous as Wall Streets junk-bond king. Since angry MacAndrews & Forbes shareholders were unwilling to accept company bondseven high-yield onesfor their stock, Milken agreed to sell the bonds to Drexel clients for cash that was used to pay off the stockholders. It was a tactic that Perelman and Milken would use over and over again.

MacAndrews & Forbes Holdings quickly took on new debt by purchasing Consolidated Cigar Holdings Ltd., the largest U.S. cigar producer, from Gulf & Western Industries in 1984 for $124 million, only $15 million of it in cash. Also in 1984, Perelman bought a controlling interest in Video Corporation of America, a tape duplication and stage rental firm, for $33.3 million, putting it under the Technicolor banner.

Perelman next took aim on Pantry Pride Inc., a poorly run retailer whose attraction was tax-loss carryovers totaling at least $330 million that could be used to offset income from profitable MacAndrews & Forbes holdings. A $60 million purchase of preferred stock gave him effective control of this company in June 1985. Within months, all three chains under the corporate umbrella were liquidated, leaving Pantry Pride a corporate shell for Perelmans biggest target yet: Revlon.

Assembling $761 million worth of high-interest bonds underwritten by Milken and a $500 million bank loan, Perelman attempted, through Pantry Pride, a takeover of the world famous cosmetic company, which was also engaged in pharmaceuticals and health and eye care. Revlons management fought the offer furiously but eventually capitulated, in October 1985. The price was heavy: at least $2.7 billion, when factoring in debt refinancing, income taxes, severance pay, and compensation for lawyers and investment bankers. Pantry Pride disappeared in 1986, becoming Revlon Group, Inc. The following year Perelman took the company private, selling newly issued MacAndrews & Forbes junk bonds through Drexel Burnham Lambert to buy out the other shareholders for $784 million.

While keeping the cosmetics division intact, Perelman already had sold two Revlon divisions for a total of more than $1 billion. In 1987 he sold Revlons vision care business for $574 million more. Another Revlon division, National Health Laboratories, became a separate public company in 1988. Perelman also beefed up Revlon by purchasing cosmetic lines such as Max Factor in 1987 for a total of $500 million and Betrix, a German firm, for $170 million in 1989. The cigar-smoking magnate sold a division of Consolidated Cigar for $45 million in 1986 and the rest of the company for $128 million in 1988.

His appetite whetted by the Revlon acquisition, Perelman attempted a hostile takeover of The Gillette Company in 1986, offering $4.12 billion for the company. After pocketing a profit of at least $34 million in selling back to management his 16 percent share of its stock (a payoff critics called greenmail), Perelman made three more offers for Gillette in 1987, raising his bid to $5.7 billion before giving up in the face of managements continued resistance. Perelman also made unsuccessful bids for TV Services and CPC International, then quit attempting hostile takeovers. Instead he began refinancing his junk-bond debt with lower-cost bank loans. Writing in 1990, syndicated columnist Allan Sloan, a persistent critic, acknowledged, Perelman ... was smart enough to use junk bond financing to make his fortune and also smart enough to jump off the junk bandwagon before it crashed.

MacAndrews & Forbes Holdings entered a new area in December 1988, when it agreed to invest $315 million (of which only $171 million was its own cash) in five troubled Texas savings and loan association units. The deciding factor for Perelman was a federal government guarantee of $5 billion to cover future losses over the next ten years. The transaction also allowed him to apply the net operating losses (estimated at $900 million to $1.2 billion) of the acquired institutions, which were consolidated as First Gibraltar Bank, to reduce the taxes of any of his profitable businesses. A sixth Texas savings and loan was added in 1990. MacAndrews & Forbes held 80 percent of First Gibraltar in 1991.

Perelman, who had created Andrews Group Inc. from the corporate shell of the former Compact Video, used this private holding company to purchase Marvel Entertainment Group, holder of such comic book titles as Spiderman and The Incredible Hulk, for $82.5 million in January 1989. Not long after, Andrews bought Marvels parent, film and television producer New World Entertainment Inc., for Andrews Group for between $120 million and $145 million. Andrews, according to Sloan, arguably was being used as a corporate toxic waste dump for unwanted and overpriced businesses. The company, 57 percent owned by MacAndrews & Forbes Holdings, lost $14.8 million in 1989 and had a negative net worth of $10 million. Three shareholders suits accused him of fraud when, in 1990, he successfully pushed through a buyback plan in which shares were repurchased with junk bonds as payment.

Also in 1989, MacAndrews & Forbes acquired The Coleman Company, Inc., maker of stoves, lanterns, and camping and other recreational equipment, for $545 million. Perelman reduced the debt for this purchase by selling the heating and air-conditioning divisions. By the end of 1990 he had sold everything except ColeMans camping equipment and boat businesses, plus added power tool and recreational vehicle businesses. Between 1993 and late 1995 he bought seven more companies for Coleman.

Institutional Investors May 1989 issue featured Perelman on its cover and called him the richest man in America, with a personal fortune approaching $5 billion. Forbes ranked him third, estimating his worth at about $3 billion. But PerelMans empire was shaky, according to some writers. Forbes s Gretchen Morgenson estimated in 1990 that the assets of MacAndrews & Forbes Holdings exceeded its debts by only $1.3 billion.

Focus on Media Companies: 1990-95

Perelman enhanced his financial position in 1991 by selling Revlons Max Factor line and Betrix label to Procter & Gamble Company for $1.14 billion, taking Marvel Entertainment public (and selling about 30 percent of the stock), and selling most of his National Health Laboratories stock. In 1995 National Health Laboratories, in which Perelman still held 24 percent of the stock, was merged with Roche Biomedical, another large clinical laboratory, to become Laboratory Corporation of America.

By mid-1992 Perelman was shopping for more companies. In September of that year he purchased, for Andrews Group, trading card and bubblegum company Fleer Corporation, for $265 million. The following year he purchased 46 percent of Toy Biz, Inc. for $7 million. Also folded into Andrews Group, in 1993, was SCI Television, a bankrupt station owner with $1.3 billion in debt for which Perelman paid $100 million in cash in return for a 54 percent stake. Half-ownership of Genesis Entertainment, a television syndicator, was placed into Andrews Groups New World Entertainment unit.

After MacAndrews & Forbes sold 130 First Gibraltar Bank branches to BankAmerica Corporation for $110 million in 1992, PerelMans profit on his savings and loan transactions may have exceeded $1.2 billion. In 1994 Perelman used nearly $500 million in tax credits to buy Californias First Nationwide Bank, the nations fifth largest savings institution, in a deal valued at $1.1 billion. The transaction was made through Dallas-based First Madison Bank, a savings and loan association founded by Perelman in 1993 with assets left over from the First Gibraltar sale.

Boston Whaler Inc., a boat builder, was sold in 1993 to MacAndrews & Forbes by Reebok International Ltd. for $20 million. Perelman added Coleman divisions and boating brands MasterCraft and Skeeter, plus OBrian water skis, to this acquisition and created Meridian Sports Holdings as the corporate umbrella for these companies. Also in 1993, Mafco Holdings, Inc., a recently created Perelman company, purchased Consolidated Cigar again, this time for $180 million (of which only $30 million was cash).

New World Entertainment and SCI Television were merged in late 1993 to form New World Communications Group. This merger into a company 54 percent owned by Perelman in mid-1994 and still reporting to Andrews Group allowed New World Entertainment, the television-producing arm, access to the cash generated by the now profitable TV stations. The communications group also included now wholly owned Genesis Entertainment, and Guthy-Renker Corporation, the leading infomercial producer in the United States, in which Perelman had bought a minority interest the previous year. Perelman also bought four more TV stations from Great American Communications for $360 million and four from Argyle Television Holdings for $716 million, financing the purchases with the aid of $205 million from a rights offering and $300 million in credits from a group of banks. Since New World now exceeded the legal limit of 12 TV stations, several were sold.

The reorganization of New World included a deal struck with Rupert Murdoch switching nearly all of the New World stations from CBS affiliation to affiliation with Murdochs Fox Broadcasting Network. Murdoch agreed to invest $500 million in New World in exchange for 20 percent of the stock, to consider New World-produced programming for Foxs lineup, and to form a joint syndication arm with New World to supply both station groups with programming.

Another Perelman holding company, named Mafco Consolidated Group, was formed to acquire Abex, a manufacturer of aerospace and industrial products, in 1994 for about $200 million. Since Abex was selling its brake friction division to Cooper Industries for $207.4 million, Perelman got the company essentially for nothing. It joined Consolidated Cigar and Mafco Worldwide Flavors (previously MacAndrews & Forbes Co.) as divisions of Mafco Consolidated Group, which was at least 80-percent owned by Perelman.

Business Week in 1995 calculated that Perelman had bought, since 1978, 44 companies, creating a highly leveraged empire with a net value of $4.93 billion. According to this magazine, the use of separate holding companies limited the overall enterprises legal liability in issuing debt, because the debt was secured by the operating companies. The enterprise at the apex of Perelmans pyramided assets was Mafco Holdings, according to Business Week and a biography of Perelman, but MacAndrews & Forbes, according to the Wall Street Journal and Barrons. The operating companies, according to Perelmans critics, were being milked systematically for the benefit of the holding companies. While Perelman was said to pay his top executives welleach reportedly earning $10 million a yearthey were receiving no equity, leaving Perelman in total control.

Still Buying and Selling: 1996-98

After years of floundering, Revlon Inc.s operating income, in 1995, finally exceeded the interest payments on its debts. This enabled Perelman to take the company public in 1996, raising $180 million by selling 15 percent of the shares. New World, on the other hand, was losing money and close to $1 billion in debt. In 1996 Perelman arranged to sell his 37 percent stake in the enterprise to Murdochs News Corporation for about $2.48 billion in stock and the assumption of $590 million in New World debt. (He had previously sold two stations to NBC for $425 million.) Also in 1996, First Nationwide Holdings Inc. purchased California Federal Bank for $1.2 billion, enabling First Nationwide to create the countrys fourth largest savings and loan association, with 242 branches in California, Florida, and Texas. In addition, Perelman sold Mafco Consolidateds licorice and flavorings business for $180 million. Consolidated Cigar went public in that year, but Mafco Consolidated retained 65 percent of the shares.

Perelmans reputation as a manager suffered serious damage from the end of 1996 bankruptcy of Marvel Entertainment. Swelled by lucrative licensing deals, the companys stock was trading at $35 a share at the end of 1993, raising Perelmans stake to a value of $2.8 billion on an original cash investment of $10.5 million. In 1995, however, Marvel went into a nosedive, and the following year it lost $464.4 million. Perelmans attempt to refinance the company was frustrated by its bondholders, notably rival entrepreneur Carl Icahn, who rejected the reorganization plan, which called for the creditors to take a substantial loss. Perelman then walked away from his investment (which included a 26 percent stake in Toy Biz), allowing it to fall into bankruptcy. Icahn, who won court approval to take it over, in turn lost control of the company and joined the angry Marvel shareholders and bondholders who were suing Perelman.

According to Barrons, Perelmans Revlon Worldwide holding company had, in May 1997, almost $2 billion in long-term debt and negative stockholders equity of almost $1 billion. Nevertheless, Perelman had raised $900 million in February to refinance Revlon debt coming due, and in May he raised $470 million in loans for Coleman. Other debt payments were reported to have been pushed back beyond 2000, leaving Perelman with more than $1 billion available for another acquisition. Revlon, California Federal, and Consolidated Cigar were said to have generated more than $600 million in profits in 1996 yet apparently paid little or nothing in federal tax due to what Barrons writer Jacqueline Doherty called killful use of holding companies and tax laws.

Mafco Holdings announced in December 1997 that it was acquiring about 72 percent of Panavision Inc., the leading manufacturer and supplier of cameras to the film industry, for about $610 million. Two months later, Perelmans California Federal Bank agreed to purchase Golden State Bancorp Inc. for stock and warrants valued at as much as $2.8 billion. The combined firm, now the nations third largest thrift institution, would be known as Golden State Bancorp but operate under the name California Federal Bank, with Perelman holding a stake of 30 to 33 percent.

In March 1998 Perelman sold his 82 percent share of Coleman to Sunbeam Corporation for stock valued at $590 million to $643 million, plus $160 million in cash. To protect his 14 percent investment in the troubled appliance manufacturer, whose stock value dropped 80 percent on news that it might have overstated its 1997 sales, he took over management of the company in June. By mid-August, Perelmans stock was worth only $72 million. Sunbeam owed creditors about $2.2 billion, including $500 million to one of PerelMans holding companies.

The Marvel and Sunbeam fiascos clearly took a toll on Perelmans fortune. In Forbess October 1998 ranking of the richest Americans, he dropped out of the top 10, with an estimated $6 billion, compared to $6.5 billion in the October 1997 listing, when he was ranked in eighth place. Before the year was out, Perelman again sold Consolidated Cigar, this time for $531 million, almost three times what he paid in 1993. The buyer was a French company, Selta S.A.

Further Reading

Bryant, Adam, Pow! The Punches That Left Marvel Reeling, New York Times, May 24, 1998, Sec. 3, pp. 1, 10.

Doherty, Jacqueline, Bulletproof Billionaire? Barrons, May 19, 1997, pp. 18, 20.

Furman, Phyllis, PerelMans Tangled Web, Crains New York Business, April 28, 1997, pp. 1, 40-44.

Hack, Richard, When Money Is King, Los Angeles: Dove Books, 1996.

Harris, Kathryn, Broadcastings Creators of a New World, Los Angeles Times, June 18, 1994, pp. D1-D2.

Laing, Jonathan R., Now Its Rons Turn, Barrons, October 12, 1998, pp. 31-32, 34-35.

Morgenson, Gretchen, The Perils of Perelman, Forbes, December 10, 1990, pp. 218-20, 222.

Nathans, Leah J., Perelman Is No Superhero to Investors at Andrews, Business Week, July 23, 1990, pp. 57-58.

Pollock, Ellen Joan, and Brannigan, Martha, The Sunbeam Shuffle, or How Ron Perelman Wound Up in Control, Wall Street Journal, August 19, 1998, pp. A1, A8.

Ramirez, Anthony, The Raider Who Runs Revlon, Fortune, September 14, 1987, pp. 57-63.

Sloan, Allan, How Perelman Pocketed a Cool $1.2 Billion on Sale of S&Ls, Los Angeles Times, September 27, 1992, p. D5.

_____, Perelman Deal on Andrews Is for Brave Only, Los Angeles Times, May 28, 1990, p. D5.

Smith, Randall, and Wessel, David, New Look: The 80s Are Over, and Ron Perelman Positions Himself As an Industrialist, Not a Raider, Wall Street Journal, March 27, 1990, pp. A1, A10.

Spiro, Leah Nathans, and Grover, Ronald, The Operator, Business Week, August 21, 1995, pp. 54-60.

Robert Halasz

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"MacAndrews & Forbes Holdings Inc.." International Directory of Company Histories. . Encyclopedia.com. 20 Oct. 2017 <http://www.encyclopedia.com>.

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