Revlon Buy-Out Plan Hits Snag in Court

The cosmetics company Revlon lost a key legal round Tuesday as a Delaware court granted an injunction ordering Revlon not to exercise “lock-up” options in a merger agreement with Forstmann, Little & Co.

Pantry Pride, the Florida retailer that for weeks has been involved in a bitter struggle to take over Revlon, had sought the injunction in order to keep its offer before Revlon’s shareholders.

Revlon’s lock-up options would have given Forstmann, Little the right to buy two of Revlon’s most profitable businesses--the vision-care group and diagnostic laboratories--for $530 million if another party acquired a 40% stake in Revlon.

The provision was clearly aimed at discouraging Pantry Pride’s bid for the cosmetics company and was only one of several anti-takeover measures that Revlon introduced soon after Pantry Pride’s first hostile takeover offer was made in August.

Last Friday, Pantry Pride raised its offer for Revlon to $58 a share, or a total of $1.83 billion, thereby topping by 75 cents a share the offer made by Forstmann, Little, a New York investment firm.

Analysts speculated at the time that Pantry Pride was attempting to bolster its legal position in the Delaware lawsuit by attempting to show that the lock-up provisions were denying Revlon shareholders the best price for their shares.

Pantry Pride made its new offer contingent upon removal of not only the lock-up provisions but also certain “poison pill” defenses intended to make Revlon prohibitively expensive to a hostile buyer.