Revlon, Inc. v. Pantry Pride, Inc.

• Decision Date: 12 September 1985
• Docket Number: Civ. A. No. 85-497 JJF.
• Citation: 621 F. Supp. 804
• Parties: REVLON, INC., a Delaware corporation, Plaintiff, v. PANTRY PRIDE, INC., a Delaware corporation, MacAndrews & Forbes Holdings Inc., a Delaware corporation, MacAndrews & Forbes Group, Incorporated, a Delaware corporation, MacAndrews & Forbes Acquisition Corporation, a Delaware corporation, Nicole Acquisition Company, a Delaware corporation, Chemical New York Corporation, a Delaware corporation, and Chemical Bank, a New York corporation, Defendants.
• Court: U.S. District Court — District of Delaware

621 F. Supp. 804

REVLON, INC., a Delaware corporation, Plaintiff, v. PANTRY PRIDE, INC., a Delaware corporation, MacAndrews & Forbes Holdings Inc., a Delaware corporation, MacAndrews & Forbes Group, Incorporated, a Delaware corporation, MacAndrews & Forbes Acquisition Corporation, a Delaware corporation, Nicole Acquisition Company, a Delaware corporation, Chemical New York Corporation, a Delaware corporation, and Chemical Bank, a New York corporation, Defendants.

Civ. A. No. 85-497 JJF.

United States District Court, D. Delaware.

September 12, 1985.

COPYRIGHT MATERIAL OMITTED

Paul Vizcarrando (argued), of Wachtell, Lipton, Rosen & Katz, New York City, Stephen F. Black (argued), of Wilmer, Cutler & Pickering, Washington, D.C., A. Gilchrist Sparks, III, of Morris, Nichols, Arsht & Tunnell, Wilmington, Del., for plaintiff.

Michael W. Mitchell (argued), Samuel Kadet, Rodman Ward, Jr., and Stephen P. Lamb, of Skadden, Arps, Slate, Meagher & Flom, Wilmington, Del., for defendants Pantry Pride, Inc., MacAndrews & Forbes Holdings, Inc., MacAndrews & Forbes Group, Inc., MacAndrews & Forbes Acquisition Corp., Nicole Acquisition Co.

Douglas Broadwater (argued), of Cravath, Swaine & Moore, New York City, R. Franklin Balotti, of Richards, Layton & Finger, Wilmington, Del., for defendants Chemical New York Corp. and Chemical Bank.

OPINION

FARNAN, District Judge.

Plaintiff, Revlon, Inc. ("Revlon"), filed a complaint pursuant to 15 U.S.C. §§ 78g, 78m, 78n and 28 U.S.C. §§ 1331 and 1337 seeking preliminary injunctive relief against defendants Pantry Pride, Inc. ("Pantry Pride"), MacAndrews & Forbes Holdings, Inc. and MacAndrews and Forbes Group, Inc. (collectively "MacAndrews & Forbes"), and Nicole Acquisitions ("Nicole") (Pantry Pride, MacAndrews & Forbes, and Nicole will be referred to as the "Pantry Pride Group"), from commencing a tender offer by Pantry Pride for any and all of Revlon's shares. Revlon also seeks to have defendants enjoined (a) from filing or disseminating any false or misleading Schedule 14D-1 statements, offering materials or other documents relating to purchases of Revlon shares by defendants, or (b) from using or attempting to use any shares of Revlon stock to control or affect the management of Revlon.

It appears from Revlon's brief that Revlon also seeks an order pursuant to 28 U.S.C. §§ 2201 and 2202 declaring that Chemical New York Corporation and Chemical Bank (collectively "Chemical") are "bidders" and part of a "group" as defined in 15 U.S.C. § 78n (1981) and, therefore, subject to the disclosure requirements of 15 U.S.C. § 78n. Revlon also seeks injunctive relief against Chemical Bank, barring them from issuing a loan to Pantry Pride, on the ground that such a loan would violate Section 7 of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78g (1981), and the regulations thereunder.

Revlon, in its Second Amended and Supplemental Complaint (Docket Item 60), has alleged seven causes of action. The first and second are disclosure claims under Sections 14(d) and 14(e) of the Exchange Act. The third alleges tipping of the tender offer plans to market professionals and arbitrageurs, in violation of Section 14(e) of the Exchange Act, and Rules 14e-3(a) and 14e-3(d)(1). The fourth claims tortious interference in Revlon's business and contractual relationships. The fifth alleges that the proposed financing for the tender offer violates the margin requirements set forth in Section 7 of the Exchange Act and Regulations G, U and X thereunder. The sixth alleges that Chemical has violated the disclosure requirements of Sections 14(d) and 14(e) of the Exchange Act and the rules and regulations thereunder. The seventh and final cause of action alleges that the Pantry Pride Group knowingly and intentionally engaged in a pattern of racketeering activity, by multiple acts of securities fraud, in violation of 18 U.S.C. § 1962. Revlon, at this time, seeks a preliminary injunction on all of the claims except the third and fourth (i.e.) the tipping violations and tortious interference claims.

I. BACKGROUND FACTS

On August 19, 1985, Pantry Pride publicly announced its intention to make a tender offer for any and all of Revlon's shares at $47.50 per share. Pantry Pride, through its wholly-owned shell subsidiary, Nicole, commenced a cash tender offer on August 26, 1985, pursuant to an Offer to Purchase bearing the date August 23, 1985. The Offer to Purchase generally provides that if the tender offer succeeds, and if 90% of the outstanding common and preferred stock are tendered, then Pantry Pride will effectuate a short-form merger of Revlon and Nicole or an affiliate. If less than 90% are tendered, it will effectuate a statutory merger through a vote of the Board of Directors and shareholders. The Offer notes that Pantry Pride may have to replace a majority of the Board of Directors in order to consummate a statutory merger. The Offer to Purchase further advises that Pantry Pride intends to sell substantially all of Revlon's assets, except the Beauty Group, in order to reduce the size of the merged corporation, and to service the debt it will incur in financing the tender offer. (Offer to Purchase at 18-19).

Revlon contends that the Offer to Purchase violates Sections 14(d) and (e) of the Exchange Act because it fails to disclose: (a) Pantry Pride's fraudulent offering in July 1985; (b) the unlikelihood of Pantry Pride's securing the financing to purchase the shares by the September 20, 1985 "Expiration Date"; (c) that the financing procured by Pantry Pride for the tender offer violates margin regulations; (d) that Chemical is a "bidder", with substantial control over the terms of the offer, and would exercise effective control over Revlon should the tender offer succeed; and (e) material information about the finances of MacAndrews & Forbes and Ronald Perelman.¹ Revlon also maintains that the takeover attempt violates the Racketeering Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. (1984), that the takeover is being financed in violation of Section 7 of the Exchange Act and the margin regulations promulgated by the Federal Reserve Board, and that Chemical, as a "bidder", failed to file and make required disclosures, in violation of Section 14(d)(1) of the Exchange Act. This opinion shall constitute this Court's Findings of Fact and Conclusions of Law² as required by F.R. C.P. Rule 52(a).

The Court will review the allegations of Revlon, first as they pertain to the Pantry Pride Group and then Chemical.

II. PANTRY PRIDE GROUP

(Pantry Pride, Nicole, and MacAndrews & Forbes)

A. Disclosure Violations

The Williams Act, Sections 14(d) and 14(e) of the Exchange Act, requires disclosure of all material facts "in connection with" the sale or exchange of securities. It was adopted to "insure that public shareholders who are confronted by a cash tender offer for their stock will not be required to respond without adequate information." Rondeau v. Mosinee Paper Corp., 422 U.S. 49, 58, 95 S.Ct. 2069, 2075, 45 L.Ed.2d 12 (1975). Rules and regulations promulgated by the Securities Exchange Commission (SEC), pursuant to Sections 14(d)(1), (d)(4), and (d)(6), specify the information that an offeror must file with the SEC, disseminate to the target company's shareholders, and include in an "offer to purchase". (Rules 14d-4 and 14d-6). All material information must be disclosed, whether or not specifically required by Sections 14(d) and 14(e). SEC Release No. 33-5844 1977-78 Transfer Binder Fed.Sec. L.Rep. (CCH) ¶ 81,256 at 88,379 n. 22 (July 21, 1977). A material fact is a fact which "`would have assumed actual significance in the deliberations of the reasonable shareholder' considering whether to tender his shares, TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 at 449, 96 S.Ct. 2126 at 2132 48 L.Ed.2d 757 (1976) ..." Staffin v. Greenberg, 509 F.Supp. 825 at 835 (1981), quoted in Staffin v. Greenberg, 672 F.2d 1196, 1205 (3rd Cir.1982) (adopting this definition of materiality as the governing test in actions based on Section 14(e)). However, offerors have no duty to "publicly admit the culpability of their actions." Warner Communications, Inc. v. Murdoch, 581 F.Supp. 1482, 1490 (D.Del.1984) (referring to) Biesenbach v. Guenther, 588 F.2d 400, 402 (3rd Cir.1978) (a complaint effectively alleging that directors failed to disclose they breached their fiduciary duty, does not state a claim under Section 10(a) of the Security Exchange Act of 1934).

1. Disclosure of Pantry Pride's Interest in Revlon as an "Acquisition Candidate"

On July 12, 1985, Pantry Pride commenced a public offering (the July Offering) of $700 million in notes, debentures and exchangeable preferred stock (the "July Prospectus") which advised that the proceeds of the offering would be used primarily "to finance acquisitions of new assets and business." However, it further advised that "no specific determination has been made to acquire any particular company, assets, properties or business." Plaintiff's Appendix at 43.

Revlon makes two arguments based on the July Offering. First, Revlon asserts that the Pantry Pride Group had definitely decided to acquire Revlon prior to the July Offering and that this material information should have been disclosed in the July Prospectus. Second, Revlon maintains that the violation of SEC disclosure requirements in the July Prospectus exposed Pantry Pride to liability for damages and/or recission by purchasers of the July Securities. According to Revlon, this potential legal liability should have been more adequately disclosed in the Offer to Purchase dated August 23, 1985.

(a) July Offering Prospectus

In its discussion of materiality, Revlon relies upon cases from other Circuits, and from Pennsylvania and Delaware District Courts, for its blanket statement that case law requires full disclosure of the purposes, plans and intentions of a tender offeror. However, in ...