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The question posed by a board's action (or inaction) in a sales context is whether the directors made a reasonable decision, not a perfect decision. Thus, although the level of judicial scrutiny under Revlon is more exacting than the deferential rationality standard applicable to run-of-the-mill decisions governed by the business judgment rule, at bottom Revlon is a test of reasonableness; directors are generally free to select the path to value maximization, so long as they choose a reasonable route to get there. Specifically, this form of enhanced judicial scrutiny involves two key features: (a) a judicial determination regarding the adequacy of the decisionmaking process employed by the directors, including the information on which the directors based their decision; and (b) a judicial examination of the reasonableness of the directors' action in light of the circumstances then existing. The directors have the burden of proving that they were adequately informed and acted reasonably.
The plaintiff shareholders sought a preliminary injunction preventing the consummation of a merger under a merger agreement whereby Hertz Global Holdings, Inc. will buy all the shares of its smaller rental car industry rival Dollar Thrifty Automotive Group, Inc. for $ 32.80 per share in cash (including a $ 200 million special dividend that will only be paid in the event of the merger) and 0.6366 shares of Hertz stock for each share of Dollar Thrifty stock. The plaintiffs criticized the corporation's board for failing to conduct a pre-signing auction and for signing up a merger agreement that yielded only a modest premium over the closing price of Dollar Thrifty’s stock on the last trading day before the merger agreement was signed. The plaintiffs argued the merger agreement had a quelling effect on any topping bidder, even though another large industry player, Avis Budget Group, Inc., came forward with a bid that nominally topped the competitor's bid. However, Avis Budget Group refused to promise to pay any reverse termination fee in the event that antitrust approval could not be attained and also had not matched the level of divestitures the competitor was willing to make to achieve antitrust approval.
Under the circumstances, should the court grant plaintiff shareholders’ motion for preliminary injunction?
The court held the factual discovery did not support the claim that the Dollar Thrifty Board likely breached its fiduciary duty to take reasonable steps to maximize the value the stockholders would receive. Rather, the record revealed that the Board, and its CEO, has managed Dollar Thrifty successfully through a financial crisis that saw the company on the brink of insolvency and improved its performance to the point where the company was profitable and receiving plaudits from the stock market. The Board did so by economizing on costs and engaging in profitable arbitrage in handling the company's rental car fleet. Throughout the last several years, while managing the company, the Board has been open to selling the company if a deal favorable to the stockholders could be achieved. To that end, the Board engaged in lengthy discussions with both Hertz and Avis in the last several years. The court could not find that its course of action was unreasonable. The court further noted that Revlon did not require that a board, in determining the value-maximizing transaction, follow any specific plan or roadmap in meeting its duty to take reasonable steps to secure, i.e., actually attain, the best immediate value. Instead, Revlon commanded that directors, consistent with their traditional fiduciary duties, act reasonably, by undertaking a sound process to get the best deal available.