(Classic Frienly Deal Cases Application of the Intermediate Standard to Selling the Company: Revlon, Inc. ¥. MacAndrews & Forbes Holdings, Ine Less than a year afer Trans Union, the Delaware Supreme. Court revisited the subject of target Board conduct i selling the company to @ favored-sitor In the intern, however, the court had decided Unocal, establishing s terediat standard of feview ~ hetisen isis Jodgent ‘wok up te aplication ofthe intermediate standard to eiendly iansactions. REVLON, INC. ¥. MacANDREWS & FORBES HOLDINGS, INC. 506.824 173 (DeL 1986) Before MeNEILLY and MOORE, 1J., and BALICK, Judge (Siting by ‘designation pursuant to Del Const, APLIV,§ 12). Se Chap. sr(Classic Friendly Deal Cases MOORS, Justice. i this bale for corporate contol of Revlon Ie (Revlon), the Court of Chancery enjoined cern transitions designed to thwart he ffs of Pantry Pride, ne. (Panty Pride to acquire Revlon” The defendants xe Revlon its board of directors, and Fortmann Lite & Co, and the laters ffsed limited partnership (collectively, Forstann). The injunetion bared consummation ofan option granted Fortmann to purchase cursin Revlon esata (he lock up option), # promise by Revlon to deal exclusively wth Forstmann in the face of takeover (the n-shop provision), and the poyment of a $25 milion cancellation fc to Forstmann if the transction vas aborted. ‘The Cour of Chancery found thatthe Revlon sirectors hat breached ihe duty of are by entering iio-the foegoing teansocions ad effetively ening an stv suction for the company. The oat ruled that such sangements ae ot illegal per se under Delaware use ude the ccumstances here was impermissible, We HE ante tis expedited interlocutory appeal to consider for the fit tne he vality of sich defensive measures in the face ofan active bidding contest for corporate cont, Additionally, we address for the first te the extent 9 which a corporation may consider the impact ofa takeover threat on constituencies other than shareholders. See Unocal Corp. v. Mesa Peusoleum Ce, 493 A.24935 (Del 1985). 1 our view, Noskps_ and related apresean are pemmited_ und Delaware lav where their adoption is untainted by diresor sees or aer ‘breaches Of fiduciary duty, The actions taken by the Revlon directors, however, didnot meet this standard. Moreover, wile concer for various corporate constituencies is proper when addressing a takeover thea, that Dincpl is mite by the requrement that there be some rationally related benefit cern tothe stockholders. We find no such benefit here. “Thus, under all the citcumstanees we must agree with the Cour of Chancery tht the enjoined Revlon defensive measires were inconsistent with the directors duties tothe stockholders. Accordingly, we affirm, ‘The somewhat complex maneuvers of the partes necessitate rather ‘detailed examination of the facts. ‘The prelude to this controversy began in June 1985, when Ronald O. Perelman, chairman of the board and chiet executive officer of Pantry Pride, met with his counterpart at Revlon, Michel . Bergerac, to discuss a friendly acquisition of Revlon by Pantry Pride Perelman suggested a price i the range of $40.50 per share, but the meeting ‘ended with Bergerac dismissing those figures as considerably below Revlon’ intrinsic valve, All subsequent Pantry Pride overtures were rebuffed peshas ‘in part based on Mr, Bergera’'s strong personal antipathy to Me, Perelman, "The noni pla, MacAndrowe & Forbes Hollings, Inc ithe conaling stctider of Fmsy Pride” Feral paca pens tines in tit gaton ‘uly Src, we eater wl ero Pty Pa he ll. 2Classic Friendly Deal Cases ‘Thus, co_August_U4, Pantry PrideS_bosn_autorized Perelman to ‘sequire Revlon. cither through negotiation inthe $42-43 per fom seauiring prior appr ‘On Aurtst 19, the Revion board met specially 19 consider the impending teat of «hostile bid by Pantry Pride.’ AC tbe meeting, Lazard Freres, Revie’ investment banker, advised the directors tht $45 per share was a posi inadequate price forthe company. Felix Rohatyn and Wiliam Loomis of Lazard Freres explained tothe board shat Pantry Pride's financial strategy for acquiring Revion would be through "junk bond’ financing followed bya break-up of Revlon and the disposition of its asiets.Wath proper timing, according to the exper, such transactions could prodyee @ return fo Panty Pride of $60 to $70 per share, while a sale ofthe company as 8 whole wot be in the. mid 50" dollar ange. Marin Lipton, special vefeayee wert ‘councel for Revion, recommended to defensive measures! fir, thatthe ¢) ‘company repurchase up to 5 million ofits nearly 30 milion ouistan eben 8! ool shares; and scond, tht i adope » Note Purchase Rights Pian, Unde tht py, na(wtee) (aad thaebee wee centitng the holder to exchange one common share for a $65_principal wen ent vr wt ‘Revlon note at 12% interest wit a one-year maturity. The Rights would vzhh Ye aber om become effecive whenever anyone aequired beneficial o so Keven aes lee Beas ke sock for ash at $65 of more per share, ship of 20% or (oe fink ‘board could redeem the Fights for 10 cents cach, Both proposals were ‘unanimously adoped. Tne falas eke keh Waa esl tyre rr te 20% gzerng vet he Reon weak Panty Pde made its frst hostile move on August 23 witha cash j! sjby ype tender offer for any and all shares of Revion at $47.50 per common share and 1, “Sy auniry say $26.67 per piefeed share, subject to (1) Panty Pride's obtaining financing or the purchise, and (2) the Rights being redeemed, rescinded or voided The Revlon board met again on Avgust 26, The directors advised the Aas) tyne stockholders to eet the offer. Farther defensive measures also WEE yf gs guen 1 planned. Or August 29, Revlon commenced its own offer for up to 10 Pai ange exits eck ad me Senior Subortinated Note (he Note: of $17.50 principal at 11.786 imtardt, due 1995, and one-tenth of a share of $9.00 Cumulative Convertible "Fire wer 14 dros onthe Revlon hed Six of thm el ser mangement for ops I ranging wot mms Chen po on Seow positon wih de company and tw es bd pica cao snk, For othe eDelv ea tale wf Feng decre were ecto some pot wih eis ht ad vious tusnes$Y9 36 t H.15% Fenris wit Revln On the bss ts ms rod Ronee, we cascode, thas Dood nied wo certain pesapons that generally wich wo the dese Of 2 ‘bd whose mori eomsiss fly ete Iden deco. 3Classic Friendly Deal Cases Exchangeabe Prefered Stock valued at $100 per share, Lazard Preres ‘opined that the notes would ide at thei face value on fully distributed basis. Revlon stockholders tendered 87% of the outstanding shares (approximately 33 mili), and the company accepted the full 10 million shares ona ro rata bass. ‘The new Notes contained covenants which limited Revlon's ably o incur additional debt, sell assets, or pay dividends unless ‘therwise approved by the “independent (non management) momber of the board phe ra sai the a ae nr ere aa a li axe ceo Seba 6 we ‘dow uf tiisey toa ETE leak sok indi ree, if Revlon femoved the impeding Rights. Wyse Rigen Tat oon eed gphelr wok yepeka exchange fe ‘The Revion board held a regularly scheduled meeting on . se eet tr egiay tector ears, |[_ management to negotiate with Pantry Pride remained determined in its efforts and continued to make cash bids fr the company, offering $50 per share on September 27, and raising its bid to $53 on October I, and then 0 $56.25 on October 7 Jn the meantime, Revlon's negotiations with Forstmann and the investment group Adler & Shaykin had produced results. The Revlop discerors me’ on October 3 1 consider Pantry Pride's $53 bid and to examine gnarl Laue bye wee oe OSs aenaes 0 We le Bath Festa an Ader & Stak Astle ‘poo the baud. AS a esl the decors unanimously “tact (inch «Suelo leaped jut by samy The emse is card 5 bb cash ‘Sows: each stekholder wuld et her : Kin the new company by the exercise oftheir Revion “golden ~ menage ooMt recht Darachutes"? Fortmann would assume Revion’s $475 milion debt ineumed ae by drains ote phe pore doles : tuperior 6 Fors The board dno seta remove te Covent at 1 focibne weld etme th ‘meeting, bacause Forstmann then lacked fem commitment [Beles p yog' fell 01 i finandng, bat accepted the Forstmann capital striae, ae eet cot wave th.the outside diestors would. waive the covenants in due couse. Part of dates Me Fgh 8 Fostmann’s plan was to sell Revon's Norell Thayer and Reheis divisions He wa dortmenty ‘1 American Home Products for $335 million: Before the merger, Revlon vaio sei conmetis and fragrance division to Adler & Shaykin for $908 ine ekover cote "olen parchres” general we usted © te ein geervats proving soba toases and er befor mann an een Secor upn change in conte of compar. 4Tobey Gade 1 M26 yet Ys well Feri a Fishy aad waves of Mb fey tacon by Her dssann STavass beep “phan be pratee eas deena s gic Wis if ally nelaty sega Yeh 4 Sa eh depp Me rr valent by an Frlanse af news vols a calige ao Ca) fame ylee , Classic Friendly Det Cases ‘These tanactions would facile the purchase by Forsimann or any oer soir of Revlon, ‘When te merger, and thas the waiver ofthe Notes covenants, was amounced, he markt value ofthese scutes began (0 fall The Notes, ‘which ogy waded nea par, around 10D, dropped to 8780 by Ostber 8 ‘One director Inter reported (st the October 12 mecting) 4 "éeloge™ of tslepone cals from ite notehlders, and on October 10 the Wall Steet, Soumal paced teats of ivaton by these creditor arty Pride countered with pew proposal on October 7 raising ts 453 offer to $5625, subject onulieaton ofthe Rishi a waver atthe [Noi cover’, andthe election of ee Panty Pride directors to the Revlon board On October, representatives of Panty Pride, Fanstnapn. and Revlon confeed ina attempt onegotite the fate of Revlon, bat could not reach apeenen. AU this teeing Pantry Pride amgounced tht i would engage in fractional bidding and top any Frsimann offer by.a highly higher nes abo sgn hat Frsimany, 0 Panty Pie excision, had Been made py cea Revon Financ dal Ths, the pres were not negotiating oa equal terms. "Agun privately armed wid Revlon data, Forsmann met on October 11 with Revlon special counsel and investment banker. On October 12, Fors made anew $57.25 per share offer, bated on several conditions? ‘Depend ne aoc pono ce Revs inion Ce ‘17S sili blow the vale asi to hem by Lazard Fees, ather vas required (0 accept a acquitor got 40% of Revlon’ shares. Revlon a ‘orshop provision. The the October ?agretment. There would be a $25 milion cancellation fee to be placed frescrow, and released to Forsimann if the new agreement {erininaled or if another acquiror got more than 19.9% of Revlon’ stack. Finally. thet would eno, participation by Revlon management in the n-rurn,Forstmann agreed to support the par value ofthe Notes, red inthe market, by an exchange of new notes. Forstmann sie Get cite ein i, cc ml ‘The Board urnimously-approved Forstmann's proposal because: ( fea hake ce thane Pury Pie i, (2) poet eps snd () Forstnan's financing was firmly in place." The board forthe apd Posmay $5725 ft: esaciy is wat St mate dag Panzy Paes 8625 bi. However the Pty Pestle nas inmcdne, heh Forse ropes Be Second fore tine abe of money bese of the dla in appv te me aNd conumasng he wscion. ‘The ena difernce Pret te fo sr na ated ™ actly atin ba $40 lin of Fon ding wat hj to two Joven nk ing he "et ees oraz nit 0 provide the toe Prey Pesce fancies ntl comeied ahs pst te lth Paty Pie apse nan Geer lee Lazu Pst ha vest a, esl ‘Bomba Lab was ih ond of ably to tee bale of $30 lon 3(Classic Friendly Deal Cases to redeom de rights and waive the covenants on the preferred stock in ‘response ta ay offer above 857 cash per share, ‘The covenants were waived, ¥he Revlon board was cofronted-with a sivaton not sneha ae pate 2 ‘and thas the Board was able to svsan ts Unocal burdens in justifying these measures. However, in granting an aset option Toekup by hig we do not enact “psi tess meta in Uno. Su 83 AM {95458 on-10, Toe dest leone a ave oe changed li repel Oat Shy ae ih yf ing ny 5 pot pe ae as(Cassie Friendly Deat Cases I the circumstances the drsfors erations olhr than the maximization of shareholder profit jo “their judgment, and followed couse the-ended th Revlon, abint cout. inrvenion, fo the ulimate —detrinem-of is represents a Beach ofthe direst’ findamenl duty of care,. See Smuth x. ‘Van Gorkon, 488, A2d 858, 874 (DeL.1985)-— li iat qouteat ie bas ‘cto i nol etd to the deference accorded it by the business judgment rneasures were properly enjoined. ‘The decision of the Court of “RMED.. 14