Redken Labs to Go Private in $48.5-Million Deal

Redken Laboratories--the Canoga Park hair products firm founded by a former actress plagued by an allergy to hair spray--said Thursday that it has agreed to convert to private ownership at a cost of $48.5 million.

A company organized by founder Paula Kent Meehan will launch a $34-per-share tender offer for the roughly 1.4 million shares not owned by Meehan, whose titles include founder-chairman and chief executive of Redken, and her husband, John E. Meehan, chairman and president of the company. The Meehans control about 48% of Redken’s stock.

Paula Meehan said she is mounting the leveraged buyout of the company--founded in 1960 with $3,000 earned from a beer commercial and a role as a hatcheck girl on the “77 Sunset Strip” television series--because “I found it very difficult being a public company.”

“What happens is there is a great deal of short-term thinking that the analysts and financial community want you to do,” she said. “I think we did start to run our company based on quarters rather than good planning.”

Redken sells its hair, skin and cosmetics products exclusively through hair-styling salons.

In a leveraged buyout, a company is purchased by investors who usually include management using borrowed funds. The financing is then repaid either through cash generated by company operations or by selling part of the firm.

Redken’s stock leaped $7.25 in over-the-counter trading Thursday to close at $34.25. Meehan said there is no possibility of a bidding war that would increase the price of the offer because she and her husband will not sell their stock or vote in favor of a merger with a third party. The tender offer is scheduled to begin by next Thursday.

“I believe that my offer at $34 is an extremely high and fair offer,” Meehan said, adding that the firm’s stock has traded in the low $20 range for the past few years. The company went public in the early 1970s.

Meehan said the company is close to completing bank financing for the deal. Redken has little debt now and the added burden will not result in layoffs among its 900-member work force or the sale of any company assets, she said.

The company had a bad year in fiscal 1986 but rebounded in fiscal 1987 after Meehan returned to a more active role with the company.

For the first six months of fiscal 1988, ended in January, sales were flat at $58.62 million and net income slipped to $1.8 million from $2.4 million. However, the company has said it expects stronger results in the second half of the year.

Meehan founded the company out of a frustration with her allergy to hair spray. Hair-care products at the time carried no explanation of ingredients.

Meehan, then 29 years old, and a partner, chemist Jheri Redding, joined forces and sold $90,000 worth of products that first year. Redding was bought out soon after the company was formed. Explaining use and ingredients to stylists and consumers and “the concept of having products that were good for you . . . that was the entire marketing focus,” she said.