Revlon v. MacAndrews
| Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. | |
|---|---|
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| Court | Supreme Court of Delaware |
| Full case name | Revlon, Inc., a Delaware corporation, Michel C. Bergerac, Simon Aldewereld, Sander P. Alexander, Jay I. Bennett, Irving J. Bottner, Jacob Burns, Lewis L. Glucksman, John Loudon, Aileen Mehle, Samuel L. Simmons, Ian R. Wilson, Paul P. Woolard, Ezra K. Zilkha, Forstmann Little & Co., a New York limited partnership, and Forstmann Little & Co. Subordinated Debt and Equity Management Buyout Partnership-II, a New York limited partnership v. MacAndrews & Forbes Holdings, Inc., a Delaware corporation |
| Decided | November 1, 1985 (oral decision) March 13, 1986 (written opinion) |
| Citation(s) | 506 A.2d 173 (Del. 1986) |
| Court membership | |
| Judge(s) sitting | John J. McNeilly, Jr., Andrew G.T. Moore II, Justices, and Balick, Judge |
Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986) was a landmark decision of the Delaware Supreme Court on hostile takeovers.
The Court declared that, in certain limited circumstances indicating that the "sale" or "break-up" of the company is inevitable, the fiduciary obligation of the directors of a target corporation are narrowed significantly, the singular responsibility of the board being to maximize immediate stockholder value by securing the highest price available. The role of the board of directors transforms from "defenders of the corporate bastion to auctioneers charged with getting the best price for the stockholders at a sale of the company." Accordingly, the board's actions are evaluated in a different frame of reference. In such a context, that conduct can not be judicially reviewed pursuant to the traditional business judgment rule, but instead will be scrutinized for reasonableness in relation to this discrete obligation.
The force of this statement spurred a corporate takeover frenzy, since directors believed that they were compelled to conduct an auction whenever their corporation appeared to be "in play," so as to not violate their fiduciary duties to the shareholders.
Colloquially, the board of a firm that is "in Revlon mode" acquires certain Revlon duties, which requires the firm to be auctioned or sold to the highest bidder.
The Court reached this holding in affirming the issuance by the Court of Chancery below of a preliminary injunction precluding Revlon, Inc. from consummating a proposed transaction with one of two competing bidders that effectively ended an active and ongoing auction to acquire the company.
CEO Ronald Perelman of Pantry Pride approached the Revlon corporation, proposing either a negotiated transaction or, if necessary, a hostile tender offer, at a price of between $42 and $45 per share. Revlon's board rejected the negotiated transaction, fearing that the acquisition would be financed by junk bonds and result in the corporation's dissolution.
To prevent the hostile tender offer, the Revlon board promptly undertook defensive action. Most notably, it adopted a Note Purchase Rights Plan, a variation on the traditional poison pill that, when triggered, resulted in the issuance of debt rather than equity rights to existing shareholders other than the unapproved bidder.
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