Revlon stock drops as judge denies minority shareholders a say in bankruptcy case

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Shares of Revlon Inc. fell 12% on Wednesday after a bankruptcy court judge ruled against minority shareholders who had asked to form a special committee to represent them in the company’s Chapter 11 case. cosmetics.

REV from Revlon,
-3.31%
the lawyers had claimed in court papers that a committee for a minority group would be a waste of money because it doesn’t expect equity to be worth anything, as Bloomberg reported. U.S. Bankruptcy Court Judge David S. Jones issued the decision during a Zoom ZM,
-4.29%
hearing Wednesday.

The company also argued that shareholders were already represented by majority owner MacAndrews & Forbes as well as other groups. MacAndrews & Forbes is the holding company of investor Ron Perelman, who owns about 85% of the company.

The committee representing unsecured creditors had also asked Jones to dismiss the minority committee, which owns about 4.7% of the common stock, according to Bloomberg.

Typically, in a bankruptcy, a company’s shares become nearly worthless because creditors who are above shareholders in the capital structure have the first claim on the assets. But Revlon stock behaved more like Hertz Global Holdings Inc. HTZ stock,
-2.36%
during the rental car company’s Chapter 11 case in 2020, as people gathering on the Reddit Wall Street Bets forum embraced it and made it another one of their meme stock bets.

Revlon stock is up 86% in the past three months as these investors hope it could be bailed out like Hertz was after the pandemic travel shutdown forced it into bankruptcy. Its losses since the beginning of the week, however, reached more than 20%.

Hertz was rescued by a group of investors led by Knighthead Capital Management and Certares Management, who invested $5.9 billion in capital on bets that the rebound in travel would ultimately benefit the company.

See now: Hertz raises $1.3 billion in a “re-listing”. The new stock will soon start trading.

Those hopes were fueled by news earlier in August that Morgan Stanley MS,
-2.64%
had purchased 400,650 shares of Revlon in the last quarter, news that was disclosed in the bank’s 13-f filing with the Securities and Exchange Commission.

See now: Shares of bankrupt Revlon climb 17% as investors cheer news that Morgan Stanley bought the stock in the last quarter

The unusual trading in the stock has raised hopes that it will retain some value, but that is not guaranteed.

“This has the potential for horrific results for investors playing the Red Bull-driven investment game of enthusiasm,” said Eric Schiffer, chief executive and chairman of Patriarch Organization and Reputation Management Consultants, and restructuring expert.

“Unlike Hertz, the reorganization plan is not pretty. I think we will see continued significant volatility. Some of those stocks that come back from the dead in this bear market rally will see the coffin closed once the market starts to regain its downward momentum, which is likely to happen,” he said. .

The Special Situations Research Bulletin had this to say:

Revlon filed for bankruptcy in June after posting a loss of $63.1 million in the first quarter, which made it impossible to service long-term debt which at the time stood at $3.31 billion. dollars.

Still, Schiffer said Revlon could have a future under the right leadership, one that understands how to market to Gen Z customers, who view the brand as somewhat old-fashioned.

“It’s a good example of lipstick on stock that isn’t justified,” he said.

Revlon shares are down 39% year-to-date, while the S&P 500 SPX,
-2.21%
fell 13%.

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