## Facts

- Public common shareholders sued RJR Nabisco, Inc., its directors, and KKR in the Delaware Court of Chancery over the board’s conduct in a leveraged buyout sale process.
- The company faced competing leveraged buyout proposals from a management-affiliated group and from KKR.
- The board formed a special committee of outside directors to supervise a sale process and retained financial advisers to assist in evaluating bids and running a competitive process.
- Two leading bids remained; their price terms were close, but the board viewed KKR’s proposal as superior overall based on financing strength and execution certainty.
- The board selected KKR’s bid and did not extend the process for an additional bidding round after late developments by the management group.
- Shareholders sought a preliminary injunction to halt the tender offer/merger, alleging loyalty and care breaches in the auction process and alleging that KKR participated in wrongdoing.

## Issues

1. Whether plaintiffs showed a reasonable probability of success that the directors breached their change-of-control duties in conducting the sale process and selecting KKR’s bid.
2. Whether plaintiffs showed irreparable harm and that the balance of equities favored enjoining a time-sensitive, highly leveraged transaction.

## Decision

- The Court of Chancery denied the motion for preliminary injunction.
- On the preliminary record, plaintiffs did not show a sufficient likelihood of proving that the board’s conduct of the sale process was unreasonable or disloyal.
- The court declined to impose a rule requiring the board to reopen bidding or conduct additional bidding rounds after late bid changes.
- The court found the balance of hardships weighed against an injunction, given the risk that delaying or enjoining the deal could jeopardize financing and harm stockholders.

## Legal Principles

- A preliminary injunction requires (1) reasonable probability of success on the merits, (2) irreparable harm absent relief, and (3) a balance of equities favoring relief.
- In a sale-of-control setting, directors must act reasonably to obtain the highest value reasonably available, but the law does not mandate a single auction format or a fixed sequence of bidding rounds.
- Directors may consider non-price factors that affect effective stockholder value (e.g., financing certainty, execution risk, timing), particularly when competing bids are close in nominal price.
- Where an independent committee runs a competitive process and manages conflicts associated with management participation, courts are less likely to intervene at the preliminary-injunction stage absent strong evidence of disloyalty or unreasonable process.

## Conclusion

The court allowed the transaction to proceed, holding that plaintiffs failed to show a likely fiduciary breach in the board’s auction process or final bid selection and that the equitable risks of disrupting a highly leveraged, time-sensitive deal outweighed the case for injunctive relief.


In re RJR Nabisco, Inc. S'holders Litig., Fed. Sec. L. Rep. (CCH) ¶ 94,194 (Del. Ch. 1989)