Asset lockups are infrequently used as deal protection

• Were sometimes used during the hostile takeover
  wave of the 1980s
• Rarely used since

• See Precedent Examples (below)

• Following critical decisions in
  Revlon,Hanson Trust and Mills Acquisition

• See Cases (immediately below)

Lexar Media / Micron Technology 2006

• Stock merger uses a patent cross-license agreement
  as one of its deal protections

• Triggered by a change of control of either company
• Akin to an asset lock-up
• Both companies are Delaware companies

• Deal Page

Revlon v MacAndrews & Forbes Del 1986

• Opinion  506 A2d 173
• Enjoined use of an asset lock-up and termination fee
  as a breach of director fiduciary duty
• Involved a bidding contest between Ronald Perelman, a hostile bidder, and Forstmann Little, a white knight, to acquire Revlon

• After several rounds of bidding, Forstmann conditioned its final offer on receipt of an option to purchase two of Revlons divisions if another bidder acquired more than 40% of Revlons stock
• Option price was set at $525 million,
  alleged to be a 20% discount to fair market value

• Court cited Second Circuit's invalidation of an asset lock-up in Hanson Trust

• "The Forstmann option had a similar destructive effect on the auction process. Forstmann had already been drawn into the contest on a preferred basis, so the result of the lock-up was not to foster bidding, but to destroy it."
  506 A2d 173, 183
• Although asset lockups are not per se illegal
  506 A2d 173, 183

Hanson Trust v ML SCM Acquisitions 2d Cir 1986

• Opinion 781 F2d 264
• Involved a bidding contest between for SCM
  between Hanson and Merrill Lynch-led management buyout

• Merrill conditioned its final offer on receipt of an option to buy two SCM businesses for $430 million if any party acquired more than one-third of SCMs outstanding shares (New York law required a two-thirds vote at the time)

• Second Circuit held the lockup grant was not protected by the business judgment rule because the board did not make an informed decision

• Court focused on the board's process in approving the bid rather than the lockups substantive effects on the auction

Mills Acquisition v Macmillan Del 1989

• Opinion 559 A2d 1261
• Involved a bidding contest between KKR and Robert Maxwell to acquire Macmillan Publishing

• KKRs final bid was conditioned on an option to acquire several Macmillan subsidiaries for $865 million

• Delaware Supreme Court struck down the option

• Under Revlon a lockup must confer a substantial benefit upon the stockholders in order to withstand exacting scrutiny by the courts.
  559 A2d 126, 1284
• Lockup did not materially enhance general stockholder interests and in fact was intended to have a
  directly opposite effect.
  559 A2d 1261, 1286

• Although asset lockups are not per se illegal
  559 A2d 1261, 1285-1286

Older examples

• Wilson Foods / International Fish & Meat 1988

• Option to acquire Wilsons Fischer Packing Unit
  for $35 million

• Holly Farms / ConAgra 1988

• Option to buy certain businesses

• Fairchild  / Banner 1989

• Option to buy Fairchilds Voi-Shan aerospace fasteners unit for $150 million

• Minnetonka  / Cheseborough-Pond 1989

• Option to buy certain assets of Minnetonkas Calvin Klein Corp. for $80 million

• Harcourt Brace Jovanovich / General Cinema 1991

• Option to buy HBJs Academic Press unit for $390 million

• Lifetime / Olsten 1993

• Option to buy two Lifetime units for $36 million

• MedChem Products / CR Bard 1993

• Option to buy Gesco unit of MCP