-Pantry Pride wanted to acquire Revlon. FTC Matter/File Number: 121 0203 . See id. Even today, questions continue to persist as to the extent to which the doctrine has been absorbed into the traditional duty of care, particularly in connection with so-called ownership transactions such as mergers, and its interplay with the Unocal test traditionally applicable to defensive board action to fend off a hostile acquisition bid, and more recently to deal protection devices contained in merger agreements. The duty of the board had thus changed from the preservation of Revlon as a corporate entity to the maximization of the company's value at a sale for the stockholders' benefit. Now it was no longer charged with protecting the shareholders and the corporate entity from perceived threats to its ability to continue to perform, but instead became obligated to the maximize the company's immediate monetized value for the benefit of shareholders. 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. Want to advertise or post sponsored content? July 1, 2013. -Pantry Pride’s strategy was to acquire Revlon through junk bonds and break up Revlon and distribute assets making a profit. Issues: The Revlon Doctrine, Poison Pill, Acquisitions. See Revlon, 506 A.2d at 180 (stating that in responding to a takeover, the board must ensure that its responsive action is reasonable). 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. How To Get A's In Law School and Have a TOP Class Rank! Editorial Board Posted on … Despite the expanse of precedent that Revlon has engendered in the more than 20 years since its issuance, the Revlon doctrine remains alive, well and surprisingly vague in terms of its scope and its application. The offer was quickly oversubscribed and in exchange for 10 million of its own tendered shares, the company issued notes that contained covenants restricting Revlon's ability to incur debt, sell assets or issue dividends going forward. -Pantry Pride wanted to acquire Revlon. In light of this, Forstmann expressed reluctance to reenter the bidding without significant assurances from Revlon that any resulting deal would close. However, a different legal standard applied once the board authorized the negotiations of a merger with Forstmann, the break-up of the company or its sale to one suitor or another became inevitable, and the board clearly recognized that the company was for sale. [7] As the court in Golden Cycle, LLC v. Allan stated, these levels are: "the deferential business judgment rule, the Unocal or Revlon enhanced scrutiny standard [and] the stringent standard of entire fairness.". The Revlon board assuaged Forstmann's concern. The directors' role changed from defenders of the corporate bastion to auctioneers charged with getting the best price for the stockholders at a sale of the company.[4]. It further announced publicly that it would top any ensuing bid that Forstmann might make, if only by a fraction. Sec. Revlon determined the price to be inadequate and declined the offer. It reached the same conclusion with respect to the exchange offer, for many of the same reasons. Less than a week following Pantry Pride's $56.25 offer, it struck a deal with Forstmann pursuant to which Forstmann would pay $57.25 per share conditioned on its receipt of a lock-up option to purchase one of Revlon's important business divisions at a discounted price should another acquirer secure 40% or more of Revlon's outstanding stock, a $25 million termination fee, a restrictive no-shop provision precluding the Revlon board from negotiating with Pantry Pride or any other rival bidder except under very narrow circumstances, removal of the Note Purchase Rights, and waiver of the restrictive covenants contained in the recently issued notes. Defendants, Revlon, Inc. and its directors, appealed a decision by the lower court to enjoin an option granted by Defendants to another Defendant, Forstmann […] 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. -Pantry Pride made a series of hostile moves, each rejected. Enforcement Type: Civil Penalty (7a) Federal Court: District of Columbia . The place for complete law school case briefs and law-related news. MacAndrews & Forbes Incorporated is an American diversified holding company wholly owned by billionaire investor Ronald Perelman. -Poison Pill spurred bidding to new heights, proper result of implementation. The sum total of cost of these books may seem high, but they dwarfed by the tangible gain received by finishing high in your class. (stating that both the termination of the bidding process and the desire of the directors to insulate themselves from liability to the noteholders represent actions which "cannot withstand the enhanced scrutiny which Unocal requires of director conduct"). Case brief: Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. Cui Lu Baker College. The cosmetics giant Revlon is proving to be a kind of corporate kryptonite. … "[9] Thus, at bottom, the business judgment rule reflects little more than process inquiry. Enclosed is a brief note discussing in general terms how a board of directors may satisfy its duties under the well-known decision of the Delaware Supreme Court in Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. United States of America, Plaintiff v. MacAndrews & Forbes Holdings Inc., Defendant. See id. "Court Confirms Target's Right Not to Negotiate with Competing Bidder". Although the cost for the employee 's salary and benefits were reduced, Revlon continued having losses from its operation indicating that it is not the salaries that makes the … Case Timeline. The first of these passages explains that, When Pantry Pride increased its offer to $50 per share, and then to $53, it became apparent to all that the break-up of the company was inevitable. REVLON, INC. V. MACANDREWS & FORBES HOLDINGS, INC. 506 A.2d 173 (1986) NATURE OF THE CASE: This was a fight over the control of Revlon, Inc. Revlon (D) directors appealed the grant of a preliminary injunction to MacAndrews (P) shareholders, which held that Ds breached their duty of care in making concessions during a corporate auction. This page was last edited on 6 October 2020, at 14:13. Directors owe fiduciary duties of care and loyalty to the corporation and its shareholders. Simultaneously, it filed a claim in the Court of Chancery, seeking interim injunctive relief to nullify the asset option, the no-shop, the termination fee and the Rights. Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 506 A. March 13, 1986). [13] This reasonableness standard requires virtually absolute independence of the board, careful attention to the type and scope of information to be considered by the board, good faith negotiation, and a focus on what constitutes the best value for the shareholders. The Revlon Rule is a complex legal doctrine which emerged from Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. The opinion provides two main passages meant to guide the actions of future boards, regarding when duties attach that lead to enhanced judicial scrutiny. 2007). [15], The entire fairness standard is triggered "where a majority of the directors approving the transaction were interested or where a majority stockholder stands on both sides of the transaction. Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. https://en.wikipedia.org/w/index.php?title=Revlon,_Inc._v._MacAndrews_%26_Forbes_Holdings,_Inc.&oldid=982159884, Articles to be expanded from January 2011, Articles with empty sections from January 2011, Creative Commons Attribution-ShareAlike License, As to the former, the Court noted that the price ultimately offered by Forstmann was not materially better than what was already on the table from Pantry Pride once the. 1985) (explaining the purpose underlying the business judgment rule and discussing a director's duties under the rule). -Here there was irreparable harm, Pantry Pride would have lost opportunity to bid unless injunction decreed. To prevent the hostile tender offer, the Revlon board promptly undertook defensive action. As to the claim of having benefitted the noteholders, the Court held that the primary beneficiaries of the decision to lock-up the Forstmann offer were the directors themselves since the primary effect of supporting the notes was to reduce the likelihood of ensuing litigation against them, already threatened, for having depressed the value of the notes by waiving the restrictive covenants. Law School Case Briefs | Legal Outlines | Study Materials. Here, the Court held, the effect of the board's effort to benefit noteholders was contrary to the interests of stockholders in that it resulted in the destruction of an active auction process that promised upon conclusion greater value for stockholders than that secured. The special injury rule would deem a shareholder’s Revlon claim to be derivative, which makes no sense. The Revlon board's authorization permitting management to negotiate a merger [*513] or buyout with a third party was a recognition that the company was for sale. U. Chi. Mar. L. Rep. (CCH) P92,525 (Del. Pantry Pride, Inc. (Pantry Pride) (plaintiff) sought to acquire Revlon, Inc. (Revlon) (defendant) and offered $45 per share. Even actions by independent boards in such circumstances that fail to evidence a reasonable effort and intent to secure the highest and best price reasonably available are likely to invoke searching judicial scrutiny. Premier Van Schaack Realty, Inc. v. Sieg; Under Utah law, a sale of property is defined as the conveyance of title to the purchaser for a valuable consideration consisting of the purchase price, or contract of sale, whereby some estate in land passes. 1984); see also Smith v. Van Gorkom, 488 A.2d 858, 872 (Del. However, recent Delaware litigation deferred to an independent's board decisions to not engage in negotiations with a competing bidder to try to obtain improved terms after a merger agreement had been signed.[19]. I have often tried to make the cases available as links in case you are a student without a textbook. Revlon has developed a long-standing reputation as a color authority and beauty trendsetter in the world of color cosmetics and hair care. at 955 (finding proof that the approving board was composed of outside independent directors who were highly informed and acted in good faith persuasive). [10] The Unocal standard is focused on the erection of defensive tactics by the target board, and involves reasonableness review of legitimate corporate threat and proportionality. Aronson v. Lewis, 473 A.2d 805, 812 (Del. LEXIS 1053, 66 A.L.R.4th 157, Fed. NEW YORK--(BUSINESS WIRE)--Nov. 14, 2003--Revlon, Inc. (NYSE: REV) today announced that MacAndrews & Forbes Holdings Inc. has agreed to provide up to $100 million to Revlon in 2004, if needed, to enable the Company to continue to execute its plan. Please keep in mind that this site makes no warranties as to the accuracy of the cases listed here or the current status of law. "[16] Directors can be found to be interested if they "appear on both sides of a transaction [or] expect to derive any personal financial benefit from it in the sense of self-dealing, as opposed to a benefit which devolves upon the corporation or all stockholders generally. The Court of Chancery granted the requested relief, finding the Revlon directors had acted to lock up the Forstmann deal by way of the challenged deal provisions out of concern for their potential liability to Revlon's disaffected and potentially litigious noteholders, a concern that would be allayed by Forstmanns agreement to restore the full value of the notes in connection with the new deal. This opinion was written by Justice Andrew G.T. L. Rep. (CCH) P92,525 (Del. 1986),[1] was a landmark decision of the Delaware Supreme Court on hostile takeovers. Applying this test, the Court found, first, that the Revlon board had acted reasonably and proportionately in adopting the Note Purchase Rights Plan in the face of a demonstrably inadequate offer of $45 per share, particularly since it retained the flexibility to redeem the rights in the event an acceptable offer should later appear and since the effect of such an action was to create bargaining leverage that resulted in significantly more favorable offers. 1986) FACTS Pantry Pride, Inc. (Pantry Pride) sought to acquire Revlon, Inc. (Revlon). Ch. See id. 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. By having agreed to structure the most recent Forstmann transaction in a way that effectively destroyed the ongoing bidding contest between Forstmann and Pantry Pride, the Revlon board was held to have acted contrary to its newly acquired, auctioneer-like obligation to pursue and secure the highest purchase price available for shareholders. NEW YORK, Dec 16, 2003 (BUSINESS WIRE) -- Revlon, Inc. (NYSE:REV) today announced that its Board of Directors has approved two loans from MacAndrews & Forbes Holdings, Inc., one to provide up to $100 million to Revlon in 2004, if needed, to enable the Company to continue to execute its plan, and the other to provide an additional $25 million that is immediately available to Revlon. Since you have likely sunk well over $120,000 into law school, the additional cost of about $120 per class is worth it. 1986).The Revlon Rule, also known as the Revlon Doctrine or Revlon Duties, applies a fiduciary duty of care to corporate boards of directors when facing hostile takeovers and mergers.. Revlon Rule in Brief. -Ultimate responsibility for managing the business and affairs of a corporation falls on its board of directors. 1986) | 506 A2d 173 | March 13, 1986 | Brett Johnson ANNOTATION DISPLAY Print Bookmark Annotated Case Font Settings Clone In this battle for corporate control of Revlon, Inc. (Revlon), the Court of Chancery enjoined certain transactions designed to thwart the efforts of Pantry Pride, Inc. (Pantry Pride) to acquire Revlon.1 The defendants are Revlon, its board of directors, and Forstmann Little & Co. and the latter's affiliated limited partnership (collectively, Forstmann). 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. "[5] As a result, not only did the board's activities fail the new Revlon standard, but they also failed the Unocal standard.[6]. Disclosure:  Some of the above links may be affiliate links.
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