Ron Perelman, cigar-chomping CEO of Pantry Pride, wanted to acquire Revlon. Revlon's CEO, Michel Bergerac, did everything in his power to prevent the acquisition. The case is a great vehicle for teaching defensive measures, because Revlon's efforts to escape Perelmans' grasp were extensive: we've got a poison pill, a stock buy-back, a white knight, and a lock-up involving a no-shop provision, a cancellation fee and a crown jewel transaction. After several rounds of bidding, Revlon locked up with Forstmann Little. The latter would acquire the company. The security of the deal was enhanced through the no-shop provision, a hefty cancellation fee and an option to purchase Revlon's key divisions (the "crown jewels") at a discount.
Pantry Pride sought to enjoin the transaction. The Delaware Supreme Court found that, when management has determined that the corporation is going to be sold, its duty is to maximize the sales price. Fiduciary duties to other stakeholders must now be subordinated the duty of getting shareholders the greatest possible bang for their buck. The court thus adds a heightened level of scrutiny in the context of defensive measures. Just months before Revlon, the court had decided Unocal, in which it permitted an exclusive self-tender to fend off a (two-tiered, front-loaded and potentially coercive) tender offer from T. Boone Pickens. There, the court determined that Pickens' offer was a threat to the corporation and that management had taken reasonable and proportional measures to counteract the threat.
Here, however, because Revlon was now up for sale and the lock-up with Forstmann precluded further bids that could have benefitted shareholders, there was a fiduciary breach and the transaction was enjoined.
Revlon v. MacAndrews & Forbes
If you put your firm up for sale
And entice a White Knight with a grail,
Lock-ups are out.
In this heavyweight bout,
Shareholder rights must prevail.