lockup agreement

Case Study Shortly after turning down an acquisition offer for the company, the board of Revlon was faced with a hostile tender offer from the same firm. Pantry Pride offered $47.50 per share, contingent on the Revlon board inactivating a poison pill that would substantially increase the firm's debt in the event an unwanted suitor acquired 20% or more of Revlon's outstanding stock. Pantry Pride filed a lawsuit to invalidate the poison pill and quickly increased its offering price to $56.25 per share. To thwart the Pantry Pride offer, the Revlon board issued substantial amounts of new debt and negotiated a buyout agreement for $57.25 per share with its own management in conjunction with another firm. To kill a Pantry Pride acquisition, Revlon agreed to a lockup agreement that would allow the favored buyer (Forstmann Little & Co.) to purchase two subsidiaries at a bargain price in the event another acquirer (Pantry Pride) acquired 40% of Revlon's outstanding stock. The lockup agreement meant that a successful Pantry Pride offer would result in the firm acquiring a much depleted company. Pantry Pride raised its own offer to $58 per share and filed a lawsuit claiming the lockup agreement violated Revlon's fiduciary duty to its shareholders. The court concurred, ruling that after agreeing to sell the firm, Revlon's board had an obligation to its shareholders to obtain the highest possible price.