Ron Perelman, one of the wealthiest men in America, sits down for his first ever Q&A.
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Perelman: Right. It is a mini-Disney in terms of intellectual property. We are a developer of characters just as Disney is. Disney 's got much more highly recognized characters and "softer" characters, whereas our characters are termed as action heroes. But at Marvel we are now in the creation and marketing of characters. The comic-book business--which was 95 percent of the business when we bought Marvel--today represents about 15 percent of the business.
Shanken: There was a significant piece in The Wall Street Journal four years ago where you were labeled a corporate raider. But it has really come down to the fact that you are a business builder, which is far different from a raider. You started in business with your father many years ago. Do you feel that the experiences with your father were in large part your MBA program?
Perelman: My experiences and education in working with and for my father were probably the most valuable that I've done and certainly at least as valuable, if not more so, than an actual MBA that I got in 1966. We had a unique working relationship. He allowed me--even forced me--to take on responsibility and authority at a very young age, far beyond what I thought was my capacity. So that very early on I got a lot of experience in dealing in the operations of businesses. And I grew up operating businesses. I left the family business in 1979 over an issue that I really wanted to start out on my own. It caused some tension initially, which we subsequently removed. But my experiences and education in working at the family business were absolutely critical in the development of my capacity.
Shanken: Your father is alive today?
Shanken: He must be very proud of you.
Perelman: You'll have to ask him.
Shanken: What and when was your first real break? I am sure that whatever it was, it had high risk.
Perelman: The core was a company called Cohen Hatfield Industries that I purchased control of in 1979. It was a low-risk transaction. It was then in the wholesale and retail jewelry business. And I bought 40 percent of the stock from one seller. It was an American Stock Exchange-listed company, and I bought it at, I think it was 35 percent of stated book value, and stated book value was understated by about 40 percent because gold and diamonds had started a real run-up at that time. The point was to get out of the jewelry business and use those proceeds to invest in a business that I felt more comfortable with. Our first large transaction after Cohen Hatfield was MacAndrews & Forbes.
Shanken: How big was the jewelry company at the time?
Perelman: Sales of under $50 million, $40 million or $50 million. I bought my 40 percent for about $1.5 million.
Shanken: That isn't bad.
Perelman: And that allowed us to take the next step of buying MacAndrews & Forbes, which was a New York Stock Exchange company, and their two businesses, plus cash--they had just gotten out of the textile and fiber business, and they had about $15 million in cash. They were in the chocolate business. They were the largest independent manufacturer, other than Hershey, of chocolate for food manufacturers, and they were in the licorice business, being the largest supplier of licorice extract to the tobacco industry.
Shanken: And how big was that company?
Perelman: They did probably $120 million. We then sold off the chocolate business.
Shanken: You bought all of MacAndrews & Forbes?
Perelman: We bought the whole company. It was a public company. We did a public tender.
Shanken: And what did it cost to buy the company?
Perelman: About $45 million to $50 million. We then sold off the chocolate business for the $45 million that we had paid for the whole thing. We were left with the licorice business. But if you look at 80 percent of the transactions that we've done, except for synergistic transactions within existing companies, they were companies that had several unique operations with a core business that we wanted to keep, and other unique or separate businesses that we wanted to exit from.
Shanken: How did you finance the MacAndrews & Forbes acquisition, since that was your first big purchase?
Perelman: We did it with funding from the banks, primarily Chase and First National Bank of Boston, and then found ourselves in a position to quickly repay that because of the sale of the chocolate business. We effectively ended up owning the flavors business for nothing.
Shanken: So Technicolor came after that?
Perelman: And Technicolor had the same profile. We paid $125 million for Technicolor. It was clear that their theatrical film processing/videocassette business was a business we wanted to consider a core business and build on. It had four or five peripheral businesses that we wanted to immediately exit from. And we got about half our purchase price back with the sale of peripheral businesses, and we were left with a core business that we could grow. We took that business from a $5 million cash-flow generator when we bought it to just under a $100 million cash-flow generator when we sold it.
Shanken: When you bought Revlon, what year was that?
Shanken: From the media coverage at the time, it seemed that the Revlon purchase ended up forcing you to dig in and get involved with the nuts and bolts of the company right down to the local plants and so forth. Did you know going in that this was going to be such a complicated high-risk investment?
Perelman: Well, it was neither complicated nor high risk. It was a highly visible investment. It was a highly thought-out transaction. It was probably the largest entrepreneurially managed hostile takeover to date in 1986. And as such it got an enormous amount of press attention. But the profile of the company was exactly what I had described earlier. Revlon was a company that had several pieces, some of which we clearly wanted to sell immediately, some of which we wanted to hold for a longer period of time, and some we wanted to hold forever. And the piece that we were most attracted to was the cosmetics piece.
Shanken: So there was never a time when you stayed up all night, saying what the hell have I got myself into?
Shanken: So a lot of the press reports were false?
Perelman: I'm not saying that everything went as I had planned, but there was never a point where I said to myself, why did I get myself into this?
Shanken: I'm aware of many of your investments. They all seem to be very successful. What was your biggest failure?
Shanken: Have you had any failures?
Perelman: Well, I think Revlon has been the most difficult company for us to manage. I think that we fixed it early on in 1986 when we bought it. Then we did not pay enough attention to it for a while, and it suffered from that.
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