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In re RJR Nabisco, Inc. Shareholders Litigation

Fed. Sec. L. Rep. (CCH) ¶ 94194 (1989)

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In re RJR Nabisco, Inc. Shareholders Litigation

Delaware Court of Chancery
Fed. Sec. L. Rep. (CCH) ¶ 94194 (1989)

RW

Facts

Kohlberg Kravis Roberts & Company (Kohlberg) (defendant) and others were interested in buying out RJR Nabisco, Inc. (Nabisco) (plaintiff) and merging Nabisco into a new corporate entity. Nabisco’s board sponsored an auction to see who would offer Nabisco the best terms. The board was scrupulous in ensuring that no Nabisco manager or insider played any role in selecting the special committee that conducted the auction. In turn, the special committee was scrupulous in ensuring that one of the bidders, a so-called management group that included Nabisco’s chief executive officer, received no special consideration. Although the management group and Kohlberg, the only other serious bidder, offered essentially similar financial terms, the board voted to accept Kohlberg’s bid on the grounds that Kohlberg offered Nabisco significant nonfinancial advantages. Dissident Nabisco shareholders criticized the board for accepting Kohlberg’s bid without a second round of bidding to see whether either bidder might increase its initial financial offer. These shareholders, ostensibly on Nabisco’s behalf, petitioned the Delaware Court of Chancery for an injunction to block the Kohlberg sale.

Rule of Law

Issue

Holding and Reasoning (Allen, J.)

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