Brief Fact Summary. Defendants, Revlon, Inc. and its directors, appealed a decision by the lower court to enjoin an option granted by Defendants to another Defendant, Forstmann Little & Co. Revlon sought to avoid a takeover by Pantry Pride, Inc. by offering the option to Forstmann.
Synopsis of Rule of Law. When a takeover is inevitable, the directors’ duty is to achieve the best price for the shareholder.
In discharging this function the directors owe fiduciary duties of care and loyalty to the corporation and its shareholders.View Full Point of Law
Issue. The issue is whether Revlon’s agreement with Forstmann should be enjoined because it is not in the best interests of the shareholders.
Held. The Delaware Supreme Court affirmed the lower court’s decision to enjoin the agreement. Revlon’s directors owed a fiduciary duty to the shareholders and the corporation, but once it was evident that Revlon would be bought by a third party the directors had a duty solely to the shareholders to get the best price for their shares. Any duty to the noteholders is outweighed by the duty to shareholders. By preventing the auction between Pantry Pride and any other bidders, the directors did not maximize the potential price for shareholders.
Discussion. The court held that the Unocal doctrine that outlined a director’s duty to the corporation and the shareholder no longer extended to the corporation once it was determined that the corporation would be sold.