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Case Brief: Revlon Inc. v MacAndrews & Forbes Holdings Inc
Facts of the Case
Pantry Pride, a nominal subsidiary of MacAndrews & Forbes Holding Limited had raised a civil suit against Revlon Inc. in a lower court following a breach of contract over an acquisition agreement. Ronald Perelman, Pantry Pride’s CEO convened with Michael Bergerac, Revlon’s CEO, in mid 1985 to deliberate on acquisition of Revlon by Pantry Pride. In his proposal, Mr. Perelman submitted a $40-42 per Revlon’s share or a hostile takeover of $45. Bergerac did not consent to Perelman’s proposals despite Perelman’s interests which saw him increase the offer to $56.25 per share on Revlon. The court later noted …show more content…
Revlon later acceded to the Forstmann’s $57.25 per share offer. Revlon also provided a $25 million cancellation fee for Forstmann as a condition to winning the contract. The plaintiff, MacAndrews & Forbes Holdings Inc, sued Revlon of a prejudiced auction which, on its assertion, was not in the best interest of the shareholders and requested enjoining the agreement. After being found guilty is a lower court, Revlon resorted for an appellate court, the Delaware Supreme Court. The appellant appealed that its directors acted in the best interest of the company and enjoining its agreement with Forstmann was …show more content…
Revlon’s directors breached the duty of care by influencing auction process bringing it to a premature terminal. Despite the inability of the trial court to base their judgment on the illegality of the transaction on the Delaware law per se since the law has no such provisions, the court was convinced that the prevailing circumstances in the case were impermissible.
Dicta
The company’s authorization to the management through its CEO to bargain on acquisition or merger proves beyond doubt that Revlon was indeed seeking for a buyout. Thus, the duty of the directors had to shift from protecting the company through preservations to protecting shareholders’ value by maximizing the company’s share price during auction. Settling on Forstmann altered this responsibility resulting in ineffective and inadequate bids. With Pantry’s bids there was a possibility of achieving a higher bid going past $70 per share which could have been of much value to the shareholders than Forstmann’s $57.25 per