Ron Perelman, one of the wealthiest men in America, sits down for his first ever Q&A.
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Shanken: How can you not pay attention to a business doing $2 billion or $3 billion?
Perelman: Because we started paying attention to other things. We were at the same time doing a series of other transactions. We had bought a bank in Texas, which required a lot of our time and attention. Over the last two years, we've gotten Revlon to the point where it's better than ever, and I am very happy with that. I am very proud of that.
Shanken: When you bought Revlon, what was its cash flow? What is its cash flow today?
Perelman: Cash flow was about $15 million in 1984, 1994 cash flow was around $200 million and 1995 significantly higher than that. There's been a very good job done in the business of Revlon.
Shanken: Is there any one company that you get more involved in the day-to-day managing, or at this point are you pretty much an overseer of all the businesses?
Perelman: I divide my time close to equally among them all. Every month we have in-depth management meetings on the operations of each of the units. Depending on the company, I'll either get daily or weekly or, in some cases, monthly numbers. But today the businesses have been in our portfolio long enough that we've got a shorthand with operating management of those companies. They know what to be sensitive to and what surprises they want to alert me to, so that they're not surprises. They understand their businesses very well.
Shanken: It's fair to say, at this point, that each business, is run by a...
Perelman: Each of our businesses is run by an independent decentralized manager.
Shanken: With a strong leader.
Perelman: With a very strong manager.
Shanken: I want to go back to this corporate-raider image. Obviously, the title was in vogue, so that anyone who bought a business was a corporate raider. Is there any particular reason why they threw you into the pot with all the others if you have basically stayed with the businesses that you've acquired?
Perelman: At the time I think that anyone doing a hostile deal--Revlon clearly was a hostile transaction--was termed a "raider." And we got sort of locked into that, into that timing.
Shanken: There were a few deals that you ended up walking away from or that they paid you off or bought your stock back. Were there any deals that you didn't conclude that you regret?
Perelman: There is only one deal that fell into that category of walking away from it. In others we were overbid. But there was only one transaction where we sold the stock back to the company. That was Gillette. And that was probably the deal that was the biggest disappointment.
Shanken: Because it got away or because you really believed that this was a business you could grow?
Perelman: I think it was a transaction that had fabulous potential as evidenced by the fact of what it's done. And a transaction that we desperately wanted to get accomplished and...
Shanken: Who blocked you? What happened?
Perelman: It was a New York Stock Exchange company. What happened was very interesting. We had made this tender for Gillette. The company was very aggressive in fighting to remain independent and there came a point.... The fighting didn't bother me. There came a point when their investment banker, Eric Gleacher from Morgan Stanley, who had been our investment banker in Revlon, came up to me on a Sunday morning and said they will sell a blocking preferred [a block of stock that makes it more difficult to put together a controlling percentage of stock] at 20 percent to another corporate institution. We didn't hear the name at that time. It turned out to be Ralston Purina, and we were faced on that Sunday with the prospect of fighting two corporate establishments and a different kind of capital structure. With Ralston having a 20 percent blocking preferred, that made it appear very difficult for us to get that transaction completed. During the day on Sunday I agreed to sell our stock to Ralston. Gillette came back to us in the middle of the night and said they were unable to finalize their agreement with Ralston, and would we sell the stock to [Gillette] that night? And they'll sell the stock to Ralston the next day. And I agreed to do that. Probably one of the worst decisions I've ever made. And the rest is history. They never did the deal with Ralston and remained independent.
Shanken: How big an investment was it that you sold to them?
Perelman: In dollars, probably $800 million.
Shanken: And did you make a profit on the sale?
Shanken: A substantial profit?
Perelman: I don't remember what it was. It was in excess of $50 million.
Shanken: What was it? They wanted to remain independent, or they didn't want Ron Perelman?
Perelman: I think they wanted to remain independent. I think that who took them out of their independent status was far less significant than...
Shanken: Who did?
Perelman: Nobody did. They never did the deal with Ralston Purina, and they just started performing up to the levels that we thought all along they could perform at and they ultimately did a deal with Warren Buffett. They did a preferred with Warren Buffett, who gave them the money to pay back the banks for the stock they bought from us, and then they took Buffett out. A brilliant deal for Buffett.
Shanken: At what point did you start doing business with Drexel? Early on?
Perelman: Definitely. Probably 1980.
Shanken: And Drexel was...Michael Milken?
Perelman: It was a whole group of people.
Shanken: You knew Milken intimately. Did the man get a bum rap, or did the man get what he deserved? What do you think about this whole chapter in American business history?
Perelman: I can speak only from my personal knowledge. He's brilliant. He's sensitive. He's caring. He's a unique individual. During the entire time that we did business together. It was for a period of six or seven years, and never was there a suggestion or hint of doing anything that was improper. Not just illegal, improper. I mean, legality never entered into it. So with us, there was never even a hint of any impropriety. I think that Michael's biggest problem was that he created a product that allowed for capital availability to a whole segment of the business community that did not have that kind of capital availability before.
Shanken: Companies were at the mercy of the commercial bank, and all of a sudden with junk bonds they had access to new and more flexible financing?