## Facts

- Toys “R” Us, Inc. had three main businesses: U.S. toy retail, Babies “R” Us, and a Japanese toy-store chain.
- The board had ten directors, including nine outside directors and the CEO as the only inside director.
- In January 2004, the company publicly began a search for strategic alternatives while its shares traded near $12.
- After meetings and advisor input, the board initially favored selling the toy retailing business while retaining the baby-products business.
- The company contacted many likely buyers and received expressions of interest from four bidders for the toy business after multiple bidding rounds.
- During the toy-division process, one bidder proposed acquiring the entire company, first at $23.25 per share and later at $24.00, eventually raising to $25.25 and signaling potential improvement.
- The board pivoted to consider a whole-company sale; given timing concerns and prior market interest, it ran a shortened solicitation for whole-company bids focused on the final toy-division bidders with limited additional diligence.
- A KKR-led group offered $26.75 per share, exceeding the next bidder by $1.50 per share (about $350 million total) and representing a 123% premium over the $12 price at the start of the process.
- The merger agreement included deal protections (including a termination fee and related provisions) challenged as coercive or preclusive.
- Stockholders sued and moved to preliminarily enjoin the stockholder vote on the merger.

## Issues

1. Whether the board breached Revlon duties by approving the $26.75-per-share sale after a shortened whole-company bidding phase rather than conducting a broader or longer auction.
2. Whether the merger’s deal protections were unreasonable under enhanced scrutiny because they allegedly deterred superior proposals and locked up the transaction.

## Decision

- The Court of Chancery denied the motion for a preliminary injunction and allowed the stockholder vote to proceed.
- The court held plaintiffs failed to show a reasonable probability of success on claims that the board’s process violated Revlon.
- The court held the challenged deal protections fell within a range of reasonableness and were not shown to preclude higher bids.

## Legal Principles

- In a sale-of-control transaction, Revlon enhanced scrutiny examines whether directors made a reasonable, well-informed, good-faith effort to obtain the best value reasonably available, not whether they achieved the highest conceivable price.
- Enhanced scrutiny focuses on the board’s decisionmaking process, the information relied upon, and the reasonableness of actions in the circumstances.
- Deal-protection provisions are permissible if reasonable in relation to the transaction and not coercive or preclusive of superior offers.
- A preliminary injunction requires, among other elements, a showing of likelihood of success on the merits and that equitable factors justify stopping the stockholder vote.

## Conclusion

The court refused to enjoin the merger vote, concluding that an independent board reasonably adjusted its strategy in response to market realities, obtained a materially superior price, and adopted deal protections that were not shown to foreclose better bids under Revlon enhanced scrutiny.


In re Toys “R” Us, Inc. S’holder Litig., 877 A.2d 975 (Del. Ch. 2005)