Revlon became the target of a hostile takeover by Pantry Pride, controlled by Ronald Perelman through MacAndrews & Forbes Holdings, Inc. Revlon’s board initially adopted defensive measures, including a poison pill and note purchase rights, to resist the bid. When the company’s breakup or sale became inevitable, the board negotiated a white-knight transaction with Forstmann Little that included lock-up options, a no-shop provision, and cancellation fees favoring Forstmann. MacAndrews & Forbes challenged those measures as improper favoritism that prevented higher bids.
When the breakup or sale of a company becomes inevitable, may the board prefer one bidder over another for reasons other than obtaining the best value reasonably available to shareholders?
Directors may deploy defensive measures under their fiduciary duties when facing a takeover threat, but once the sale or breakup of the company becomes inevitable, their role changes from defenders of the corporate bastion to auctioneers charged with securing the best price reasonably available for shareholders. Deal protections and bidder preferences are invalid if they are designed to favor one bidder for non-stockholder-value reasons at that stage.
No. Once Revlon’s sale became inevitable, the board had a duty to maximize immediate shareholder value and could not favor Forstmann Little based on concerns for noteholders or other constituencies. The lock-up and related protections were therefore unenforceable because they impeded the board’s duty to obtain the best price.
The court accepted that Revlon’s earlier defensive measures could be justified under the threat posed by Pantry Pride, but found that the board’s duties changed once it became clear the company would be sold. At that point, concerns such as preserving noteholder interests or selecting a bidder thought to be a better corporate caretaker could not override the obligation to maximize shareholder value. The lock-up option and no-shop provisions skewed the bidding process and effectively ended fair competition for the company. Because the board abandoned neutrality in the auction and favored Forstmann for impermissible reasons, the measures violated fiduciary duty.
Revlon is the foundational Delaware case establishing "Revlon duties": when a sale or breakup of the company becomes inevitable, directors must seek the best value reasonably available for stockholders. It sharply limits the use of defensive tactics and deal protections once the board has entered sale mode. The case is closely related to Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985), which supplies the enhanced-scrutiny standard for takeover defenses, and Paramount Communications Inc. v. QVC Network Inc., 637 A.2d 34 (Del. 1994), which elaborates when Revlon duties are triggered.
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