## Facts

- Revlon, Inc., a publicly traded cosmetics company, faced a hostile acquisition attempt by Pantry Pride, Inc. structured as a highly leveraged transaction.
- Chemical Bank agreed to finance Pantry Pride’s bid through (1) a $500 million bank loan and (2) an arranged public debt offering of up to $900 million in debt securities.
- The loan was to be secured by Revlon stock Pantry Pride expected to acquire; the debt offering was alleged to be indirectly secured by Revlon stock.
- Revlon sued Pantry Pride and Chemical Bank in federal district court seeking a preliminary injunction to block the loan and the public debt offering.
- Revlon alleged the financing violated Federal Reserve Board Regulation U (issued under § 7 of the Securities Exchange Act of 1934) by extending or arranging bank credit secured directly or indirectly by margin stock beyond regulatory limits.

## Issues

1. Whether the $500 million loan and the up-to-$900 million debt offering constituted prohibited “margin credit” secured directly or indirectly by Revlon stock under Regulation U and § 7 of the Securities Exchange Act.
2. Whether the alleged Regulation U violations warranted preliminary injunctive relief barring the financing transactions.

## Decision

- The court denied Revlon’s request for a preliminary injunction.
- Revlon did not make the showing required to justify enjoining Chemical Bank’s loan or the related public debt financing based on the asserted Regulation U theory.
- The court declined to treat the margin-credit rules as a basis to halt the takeover financing on the record presented.

## Legal Principles

- Regulation U implements § 7 of the Securities Exchange Act by limiting certain bank credit used to purchase or carry “margin stock” when the credit is secured, directly or indirectly, by such stock.
- A party seeking a preliminary injunction must establish the standard equitable factors, including a sufficient likelihood of success on the merits and irreparable harm absent relief.
- Alleged violations of federal margin-credit restrictions do not automatically justify enjoining complex takeover financing; the asserted regulatory fit and equitable showing must support the extraordinary remedy.

## Conclusion

The court refused to block a hostile bidder’s financing where the target’s Regulation U challenge did not provide an adequate basis for preliminary injunctive relief, allowing the bid’s financing arrangements to proceed pending further developments.


Revlon, Inc. v. Pantry Pride, Inc., 621 F. Supp. 804 (D. Del. 1985)