1. Firms for Sale (Note: These slides were taken from the internet by a student, but at this point I don’t know the source. I simply want to acknowledge that they were prepared by someone other than me.)

2. Revlon zPantry Pride (Perelman ) wants to acquire Revlon for about $45 per share. How and Why? zJunk Bond Financing zBecause Perelman thought the breakup value of Revlon would be between $60 and $70 per share.

3. Revlon zWhat were Revlon’s first defensive tactics? zThe issuance of Note Purchase “Rights” (redeemable by the board that permitted any shareholder but an acquiror of 20% or more to exchange one share for a $65 note of anyone acquired 20% or more for something other than $65 cash per share.

4. Revlon zWhat were Revlon’s first defensive tactics? zThe self tender for 10 million shares each in exchange for a “Note” of $47.50 and a $10 share of Preferred Stock. zThe Notes contained covenants against future debt unless approved by Revlon’s independent directors.

5. Revlon zDid these early defensive tactics works? zYes and no. Pantry Pride raised its bid to above $50 but did not go away.

6. Revlon zWhat did Revlon do next? zAgreed to a facilitate a buyout by Forstmann for $53 per share. zForstmann would assume Revlon’s $475 million debt from the Notes issuance. zRights canceled for this (or better) offer. zRevlon’s independent directors would remove the debt covenants of this (or better) offer. zForstmann would breakup Revlon.

7. Revlon zWhat happened next? zThe value of the Notes began to fall and Note holders threatened litigation. zPantry Pride raised its offer to $56.25 subject to nullification of the Rights, removal of the Note covenants, and seats on Revlon’s board.

8. Revlon zWhat was Revlon’s response? zFortification of the deal with Forstmann for $57.25 per share using: zA “crown jewel” option for Vision Care and National Health Laboratories, an option worth between $100M and $175. zA $25M breakup fee. zA no-shop agreement.

9. Revlon zHow did Revlon defend this deal? zForstmann offered $1 more per share. zProtection of Note holders. zForstmann’s financing was in place. zForstmann demanded an immediate answer.

10. Revlon zWhat was Panty Pride’s next move? zSued to enjoin the defensive tactics. zRaised its offer to $58 per share contingent on rejection of these tactics.

11. Revlon zWhat standard did the court apply? zBoard must show that it “had reasonable grounds for believing there was a danger to corporate policy and effectiveness, a burden satisfied by a showing of good faith and reasonable investigation. “Page 771. zResponse must be “reasonable in relation to the threat posed.” Id.

12. Revlon zIn what respects did the court support Revlon? zThe Rights were a good faith and reasonable response to Pantry Pride’s initial low bid, and became moot as the price rose. zThe exchange offer too, was a good faith reasonable response to a low offer.

13. Revlon zWhy then did Panty Pride win? z“The Revlon board’s authorization permitting management to negotiate a merger or buyout with a third party was a recognition that the company was for sale. 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 ….” Page 773.

14. Revlon zWhy Pantry Pride won. zPut simply, the court blamed the Revlon board for attempting to stop the auction too soon, using the crown jewel option, breakup fee, and no-shop clause.

15. Revlon zWhat of the board’s purported reasons regarding Forstmann’s higher price (combined with Forstmann’s threat to withdraw) and better financing? zTrivial, both.

16. Revlon zWhat of the board’s contractual or other interest in protecting the Note holders? zFiduciary duty runs to shareholders. z“A board may have regard for various constituencies in discharging its responsibilities, provided there are rationally related benefits accruing to stockholders.” Page 774

17. Revlon zWhy did the court think the board favored Forstmann? zFear of Personal liability on the Notes, which Forstmann was going to support. zBut personal liability seems a stretch, as may Forstmann’s ability to protect the Notes, which dropped in value on notice of the Forstmann merger. zPersonal animosity might be a better fit.

18. Revlon zAn important prelude to future cases: z“Favoritism for a white knight to the total exclusion of a hostile bidder might be justifiable when the latter’s offer adversely affects shareholder interests, but when bidders make relatively similar offers, or dissolution of the company becomes inevitable, the directors cannot… [play] favorites ….” Page 775