Inc."

OPINION

I. Introduction

This opinion addresses a motion to enjoin a vote of the stockholders of Toys “R” Us, Inc. (the “Company”) tomorrow to consider approving a merger with an acquisition vehicle formed by a group led by Kohlberg Kravis Roberts & Co. (“the KKR Group”). If the merger is approved, the Toys “R” Us stockholders will receive $26.75 per share for their shares. The proposed merger resulted from a lengthy, publicly-announced search for strategic alternatives that began in January 2004, when the Company’s shares were trading for only $12.00 per share. The $26.75 per share merger consideration constitutes a 123% premium over that price.

During the strategic process, the Toys “R” Us board of directors, nine of whose ten members are independent, had frequent meetings to explore the Company’s strategic options. The board, with the support of its one inside member, the company’s CEO, reviewed those options with an open mind, and with the advice of expert advisors.

Eventually, the board settled on the sale of the Company’s most valuable asset, its toy retailing business, and the retention of the Company’s baby products retailing business, as its preferred option. It did so after considering a wide array of options, including a sale of the whole Company.

The Company sought bids from a large number of the most logical buyers for the toy business, and it eventually elicited attractive expressions of interest from four competing bidders who emerged from the market canvass. When due diligence was completed, the board put the bidders through two rounds of supposedly “final bids” for the toys business. In the midst of this process, one of the bidders expressed a serious interest in buying the whole company for a price of $23.25 per share, and then $24.00. The board decided to stick by its original option until that bidder made an offer to pay $25.25 per share and signaled it might bid even a dollar more.

When that happened, the board was presented with a bid that was attractive compared with its chosen strategy in light of the valuation evidence that its financial advisors had presented, and in light of the failure of any strategic or financial buyer to make any serious expression of interest in buying the whole Company — even a non-binding one conditioned on full due diligence or a friendly merger — despite the board’s openly expressed examination of its strategic alternatives. Recognizing that the attractive bids it had received for the toys business could be lost if it extended the process much longer, the “Executive Committee” of the board, acting in conformity with direction given to it by the whole board, approved the solicitation of bids for the entire Company from the final bidders for the toys business, after a short period of due diligence.

When those whole Company bids came in, the winning bid of $26.75 per share from the KKR Group topped the next most favorable bid by $1.50 per share. The bidder that offered $25.25 per share did not increase its bid. After a thorough *980 examination of its alternatives and a final reexamination of the value of the Company, the board decided that the best way to maximize stockholder value was to accept the $26.75 bid. That was a reasonable decision given the wealth, of evidence that the board possessed regarding the Company’s value and the improbability of another bidder emerging.

In its proposed merger agreement containing the $26.75 offer, the KKR Group asked for a termination fee of 4% of the implied equity value of the transaction to be paid if the Company terminated to accept another deal, as opposed to the 3% offered by the company in its proposed draft. • Knowing that the only-other bid for the company was $1.50 per share or $350 million less, the Company’s negotiators nonetheless bargained the termination fee down to 3.75% the next day, and bargained down the amount of expenses the KKR Group sought in the event of a naked no vote.

In their motion, the plaintiffs fault the Toys “R” Us board, arguing that it failed to fulfill its duty to act reasonably in pursuit of the highest attainable value for the Company’s stockholders. They complain that the board’s decision to conduct a brief auction for the full Company from the final bidders for the toys business was unreasonable, and that the board should have taken the time to conduct a new, full-blown search for buyers. Relatedly, they complain that the board unreasonably locked up the $26.75 bid by agreeing to draconian deal termination measures that preclude any topping bid.

In this opinion, I reject those arguments. A hard look at the board’s decisions reveals that it made reasonable choices in confronting the real world circumstances it faced. That the board was supple in reacting to new circumstances and adroit in responding to a new development that promised, in its view, greater value to the stockholders is not evidence of infidelity or imprudence; it is consistent with the sort of difficult business decisions that corporate fiduciaries are required to make all the time. Having taken so much time to educate itself and having signaled publicly at the outset an openness to strategic alternatives, the Toys “R” Us board was well-positioned to make a reasoned decision to accept the $26.75 per share offer.

Likewise, the choice of the board’s negotiators not to press too strongly for a reduction of the KKR Group’s desired 4% termination fee all the way to 3% was reasonable, given that the KKR Group had topped the next best bid by such a big margin. To refuse to risk a reduction in the top bid, when the next best alternative was so much lower, can hardly be said to be unreasonable, especially when the board’s negotiators did negotiate to reduce the termination fee from 4% to 3.75%. Furthermore, the size of the termination fee and the presence of matching rights in the merger agreement do not act as a serious barrier to any bidder willing to pay materially more than $26.75 per share.

For these and other'reasons that I discuss below, the plaintiffs’ motion for a preliminary injunction is denied.

II. Factual Background 1

A. The Plaintiffs

The plaintiffs in this action, Iron Workers of Western Pennsylvania Pension and Profit Plans and Jolly Roger Fund LP, are shareholders of defendant Toys “R” Us, Inc. 2 They filed their initial complaints in *981 late March, 2005. Rather than immediately press for expedition on their core Rev lon 3 claims, the plaintiffs delayed until May 20, 2005 to do that, thereby unduly compressing the time available for discovery and consideration of their motion to enjoin the merger vote scheduled for June 22, 2005. Given that the plaintiffs’ central claims were based on Revlon, rather than on any failures in disclosure, their explanation that the proxy statement for the merger vote was not final until May rings hollow.

The plaintiffs have not, as is sometimes the case in suits like this, offered a competing bid for the company that has been forestalled by a recalcitrant board of directors. Rather, they say they are simply shareholders, supposedly intent upon receiving top-dollar value for their shares. I say “supposedly” because despite their stated belief in the inadequacy of the merger consideration at issue — $26.75 per share — the plaintiffs both sold substantial blocks of their Toys “R” Us shares in the market after the merger announcement, for prices below the per share price offered in the proposed merger. The Iron Workers sold 5,210 shares, or 39% of their holdings at an average price of $25.80; Jolly Roger sold 103,800 shares, or 22% of its holdings at an average price of $26.01.

B. The Company And Its Businesses

Toys “R” Us is a specialty retailer with nearly 1500 stores worldwide. As of all relevant times, the Company had three divisions:

Global Toys — This division operates the Company’s famous toy stores both domestically and internationally, with the exception of Japan. By far the largest of the divisions, Global Toys accounted for more than $9 billion of the Company’s $11 billion in total annual sales, and operates the bulk of the Company’s stores. Entering 2004, the problem for Global Toys, particularly in the U.S. market, was its declining profitability, in the face of intense price competition from Wal-Mart, Target and other more diversified “big box” retailers.

Babies “R” Us — This is the second largest division in the Company. Babies “R” Us operates over 200 specialty retail stores that sell a full range of products for expectant mothers and babies. The division has experienced impressive growth in recent years and has higher profit margins than Global Toys. By one measure, Babies “R” Us contributed approximately half of the Company’s operating earnings in 2004.

Toys Japan — This division operates a chain of toy stores in Japan under the Toys “R” Us brand name. The Company only owns 48% of this chain. The parties in this case generally agree that Toys Japan comprises only around $1.00 per share of the Company’s overall value.

The operating relationship among the divisions is important to understand. As might be expected, the Company had tried to capitalize on economies of scale by using common distribution networks, information systems, and other back-bone services to operate the three divisions. Therefore, although the Company reported the divisions’ results separately, they did not in fact function with operational autonomy.

*982 One critical implication of that reality for present purposes is its effect on the value of Babies “R” Us. The Company’s public filings likely understate the extent to which Babies “R” Us has been subsidized by Global Toys. That subsidy consists of overhead that Babies “R” Us uses but that is actually charged to the Global Toys division, a practice that results in an inflation of the Babies “R” Us division’s profits to the corresponding detriment of the profits of Global Toys. In this same vein, it is notable that in 2004 Babies “R” Us contributed only $245 million to the Company’s total of $787 million in EBIT-DA. For these reasons, the Company’s management and board do not consider Babies “R” Us to be equally as valuable, either in terms of assets, revenues, or profits, as Global Toys.

Another important implication of the operational entanglement of the various divisions is its effect on the practicability of selling them as separate units. Babies “R” Us was not positioned to operate independently immediately upon a sale. Any buyer would be dependent for some substantial period on transitional services to be provided by the Company. And, of course, once Babies “R” Us acquired the functional capacity to conduct all of its required operations autonomously, its ongoing costs of operation would increase materially, perhaps by more than $100 million annually.

C. The Management And Board Of The Company

The Company’s board of directors consisted of ten members. The plaintiffs concede that nine of those members are independent, non-management directors. The one inside director was the Company’s Chairman and Chief Executive Officer, defendant John H. Eyler, Jr. Eyler had joined Toys “R” Us as CEO in 2000. That position was just the most recent in a succession of high-level executive positions Eyler had held within the retail industry. Eyler had served as CEO of toy retailer FAO Schwarz for the eight years preceding his joining Toys “R” Us.

For present purposes, one committee of the board bears particular mention. The Executive Committee of the board is comprised of four members. Eyler chairs the Committee, which is also comprised of the chairmen of the board’s other committees. The other members are Arthur Newman, Roger Farah, and Norman Matthews. Notably, Matthews and Farah each have considerable experience in retail. Matthews has been involved in retail for nearly 30 years, serving on the boards of Federated and Hills Department Stores. Farah is CEO and director of Polo Ralph Lauren, and before that served in a top position at Federated. 4

D. The Board Seeks A Cure For The Postr-Holiday Financial Blues

The present Revlon case has counterin-tuitive origins. Several of our most prominent Revlon cases arose as consequences of CEO-driven decisions to embark on and stubbornly adhere to a specific business strategy, even when higher-value alternatives presented themselves. Neither the secondary role played by the independent directors nor the lack of suppleness displayed in those cases is present in the current scenario. And that was true from the get-go.

By the end of 2003, Toys “R” Us faced daunting challenges. As adverted to, its domestic toy stores faced withering price competition from discount merchandisers *983 like the powerhouse from Bentonville. Not only that, the preferences of children were changing. As the electronics industry has churned out a variety of products making televisions and computers even more dangerously addictive usurpers of time and brain cells, children of increasingly younger ages have eschewed traditional toys, the enjoyment of which require blends of physical exertion and imagination, in favor of the chair-bound pleasures that can be delivered by a Gameboy.

These challenges were reflected in disappointing sales during the Company’s crucial Christmas holiday season in 2003. Domestic toy sales declined nearly 5% over the prior year’s holiday period, and were flat internationally. The Company’s stock price was affected by the market’s understanding of the Company’s difficult competitive position. For much of December, Toys “R” Us shares traded below $11 apiece.

When the new year began, the Company began to consider ways to pull out of these doldrums and deliver more value to its stockholders. In a call with analysts to announce the disappointing holiday sales results, Eyler confirmed that the Company was likely to embark on a serious examination of strategic options to improve the Company’s ability to use its valuable assets to deliver returns to its investors. The day he did that, January 8, 2004, Toys “R” Us shares closed at $12.00 per share.

At a meeting on February 11, the board made several decisions to facilitate a thorough strategic review. The board retained an investment banking team from the retail group of Credit Suisse First Boston (“First Boston”) to help it develop and evaluate its options. In connection with that review, the board focused on an important part of the value of the Global Toys division — its real estate. Although the operations of Global Toys were suffering, that division owned many of the properties on which its stores operated. Those properties were very valuable in a hot real estate market, a fact which presented the Company with the options of: selling off its real estate portfolio entirely; closing its least profitable stores and selling the properties on which they were located, and thereafter operating a lower cost toy retailing business; or marketing Global Toys to buyers who might be well-equipped to execute on either of those strategies. To get a handle on the. true value of Global Toys, the board decided to get updated information on the value of its real estate holdings.

To ensure that the board had a wide range of options, it also supported Eyler’s decision to create an internal management team that would, working in isolation from First Boston, brainstorm about options. In that way, the board could receive a range of ideas from two sources working independently, thus maximizing the chance of capturing all rational ideas for consideration.

On a somewhat different, but also important front, the board acted to guarantee the fairness and reasonableness of its approach to the strategic review. The board retained the law firm of Skadden, Arps, Slate, Meagher & Flom to advise them as to their legal and equitable duties in the review process.

After the February 11 meeting, the internal management and First Boston teams began working in earnest to develop a set of options for the board to consider. During this period, the Executive Committee met on several occasions, each time discussing and providing guidance for the ongoing strategic review. As would be expected, the public announcement of a strategic review had piqued the interest of entities that saw value either in the Company’s assets or in the Company as a whole. Some of these interested parties *984 made soft overtures about what they would like to purchase. For example, Best Buy, Home Depot, PETsMART, Staples, and Office Depot each expressed an interest in a portion of Global Toys’ real estate portfolio. The Executive Committee decided that it would be premature for First Boston to begin shopping all or part of the Company to buyers until the board was in a position to consider the options the strategic review developed.

E. The Board Concentrates On A Discrete Set Of Strategic Options

At a three-and-a-half hour, June 1 board meeting, First Boston and the internal management team reported the results of their consideration of the Company’s options. From the myriad of possibilities that they had pondered came forth four options that were deemed worthy of more in-depth analysis:

• Continuing to operate the Company as a single retail entity but reducing substantially the number of toy stores and overall operating expenses. In connection with this and all the other options, First Boston recommended making a public offering of the Company’s Toys Japan equity interest;

• “Monetizing” the value of Babies “R” Us by spinning or splitting it off to the stockholders. Under this alternative, Company stockholders were envisioned to end up holding shares in two public companies: Toys “R” Us (essentially Global Toys) and a new public Babies “R” Us;

• Selling Global Toys and monetizing the Babies “R” Us division by a spin- or split-off or by a sale. One of the problems identified with this scenario was that if Babies “R” Us was sold first, the tax ramifications to the Company and its stockholders could be substantial, as the tax basis for that division was very low and there was the possibility that capital gains taxes would be exacted at the Company level and, upon distributions to the stockholders, at the investor level. A later sale of all or part of Global Toys at a capital loss, however, was identified as a possible way to decrease this risk to some extent;

• Retaining Babies “R” Us as the Company’s sole remaining retail division and selling Global Toys.

First Boston did not recommend to the board that it focus on the sale of the entire Company because, as the minutes state, First Boston “did not believe there was a buyer for the whole company.” 5 This, as we now know, did not turn out to be a good prediction. First Boston’s actual written presentation to the board was closer to the mark, indicating that “the universe of potential acquirors for the entire [Company] is extremely limited.” 6

There is absolutely no inkling to.be had from the record that the decision not to focus on a sale of the Company as a whole had any origin in a desire by Eyler or any other member of the board to continue in their positions as fiduciaries of an operating company.

The next day, June 2, the board met again for most of the day. A healthy portion of the meeting involved a board discussion of the issues considered the previous day regarding the strategic review process. The-board asked more questions, debated the pros and cons of the various options, and discussed the work needed to be done in order to make a decision whether to pursue one of the four options man *985 agement and First Boston had urged be their focus.

F. In Connection With The Presentation Of Strategic Options, The Board Is Fully Briefed On The Possible Value Of The Company And Its Various Divisions

As a precedent to its presentation of options on June 1, First Boston had first briefed the board on its “sum of the parts” valuation of the Company. The resulting value range for the entire company was between $4.325 billion and $6.125 billion (or between $14.11 and $22.19 per share). Of those values, Global Toys was valued at between $2.85 billion and $8.75 billion (or between $11.40 and $15.00 per share). By comparison, Babies “R” Us was valued at between $1.7 billion and $2.1 billion (or between $6.80 and $8.40 per share). 7

Because the plaintiffs focus on the value of Babies “R” Us so intensely in their arguments, it is worth highlighting the valuation information First Boston presented to the board regarding that division. That information included two methods that are useful in estimating what the board could reasonably expect that division to sell for in a sale to a third party. The first was a discounted cash flow valuation, the base case of which valued Babies “R” Us at between $1.75 billion and $2.2 billion (or between $7.00 and $8.80 per share). The second was a comparable transactions analysis that valued Babies “R” Us using the acquisition multiples paid in sales of comparable companies — i.e., sales of whole retail companies. The value range produced by that method was between $1.8 billion and $2.15 billion (or between $7.20 and $8.60 per share).

Put simply, as of June 2004, the board had already received a thorough analysis of the value not only of the Company as a whole, but of its various .divisions. Not only that, First Boston’s input was also supplemented by information about the value of the Company’s real estate, which was developed by an outside expert consultant.

G. The Board Decides That Selling Global Toys Is The Best First Strategic Move To Make

After the two board meetings on June 1 and 2, management and First Boston refined their analyses of the four core options. At a lengthy July 13 meeting, the board considered detailed presentations regarding the various options. By that time, Eyler had begun focusing on a separation of Global Toys and Babies “R” U.S. as a core element of a value-maximizing strategy, and made a detailed presentation regarding some means for accomplishing that end. The board did not make any decision to pursue or reject any option at that meeting, but directed that further analysis of each option continue.

In order to guarantee that the board could devote sufficient time to selecting an option at its next meeting, the directors decided to double the length of their August 10 meeting and to make themselves available for telephonic meetings earlier if developments warranted. Notably, the board held an executive session, from which Eyler was excused. During that session, the independent board members indicated that they were leaning towards a total spin-off of Babies “R” Us as a preferred option if there was to a be a separa *986 tion of that division. But no firm decision was made about that.

On July 19, a consortium of bidders including Cerberus Management, L.P. and GS Capital Partners (i.e., the private equity vehicle for Goldman Sachs) sent the Company a formal expression of interest in purchasing Global Toys for between $2.6 billion and $3.0 billion (between $11 and $13 per share) in cash. According to Cerberus, its offer would give the Company stockholders total value of $20 to $23 per share, on the assumption that the remaining business of the Company after a sale of Global Toys — i.e., primarily Babies “R” Us — would trade at $9 to $10 per share. Another credible private equity buyer, headed by Apollo Advisors, also orally expressed interest in buying Global Toys.

In light of Cerberus’s expression of interest, which was in a range First Boston found attractive, the board convened tele-phonically on July 27. After a discussion of pertinent issues, the board authorized First Boston to inform both Cerberus and Apollo that the Company would be prepared to hold discussions with them after the board’s August 10 meeting. So as to enable the Company to make a more thorough market canvass for interested purchasers of Global Toys, First Boston was instructed to put together offering and due diligence materials “as quickly as possible.” 8

On August 10, the board met as scheduled. The meeting lasted a full 10 hours. During the course of the day, the independent directors spent three hours in executive session. By this meeting, the Company had retained Simpson, Thacher & Bartlett LLP to provide legal advice in connection with any transactions the Company might effect as a result of the strategic process. By this means,. the board could utilize Skadden exclusively as an ad-visor to the board itself, and let Simpson Thacher act as deal counsel on behalf of the Company — a role that would naturally involve constant interaction with management. Consistent with this division of labor, Simpson Thacher attorney John Finley was excused from most of the board’s executive sessions, but Skadden’s David Fox remained.

During the no doubt exhausting discussion of options, the board focused on a number of issues, including whether Global Toys should, if retained, be liquidated or continue to operate. The board preliminarily concluded that stockholders would obtain more value if the division continued its retail operations — but only at much lower costs. The board recognized that the feasibility of this option depended on the Company’s ability to cut costs sharply without adversely affecting sales, and that the results of 2004’s holiday sales would provide important data regarding the relative value of liquidation or operation.

In that same connection, First Boston presented the possible impact that the Cerberus offer could have on stockholders, concluding that it might generate $21.26 a share — a price “substantially higher than” the value that was projected if the Company continued to operate as a single unit, even assuming the substantial cost reduction strategy being contemplated for Global Toys.

At the end of the day, the board decided to approve a strategy focused on separating Global Toys and Babies “R” Us, either by selling Global Toys or by spinning off Babies “R” Us. Management was authorized to publicize this strategic direction through a press release that the board had reviewed in its executive session. In the press release, the Company said that it was pursuing a separation in order to in *987 crease shareholder value, and that its means of moving forward included “ex-plor[ing] the possible sale of the global toys business as well as ... preparing] for a possible spin-off of Babies “R” Us.” 9 Consistent with that direction, the Company announced that it would begin to separate the operations of Global Toys and Babies “R” Us, designating Richard Mar-kee, Eyler’s number two, as the manager who would become CEO of Babies “R” Us when the separation became a reality. This move, which Eyler supported, meant that Eyler was likely, if things worked out, to be out of a job, because the momentum at that time was towards an outcome that did not involve continued ownership or operation of Global Toys.

H. First Boston Begins To Market Global Toys

As of the time the board authorized First Boston to solicit buyers for Global Toys, a bit of an informational divide had already arisen between First Boston and the board. By then, several parties had expressed some interest in purchasing not simply some of the assets of the Company, but the entire Company. Eventually, First Boston heard from eleven sources that expressed interest in buying the entire Company. Because none of these overtures was advanced with even the formality of a letter, First Boston did not change its initial impression that selling the whole Company was unlikely to be the best way to increase shareholder value. Either because it viewed the inquiries concerning the sale of the whole Company as lacking in seriousness or through an oversight, First Boston did not report those tentative expressions of interest to the board. Accordingly, both First Boston and the board placed greatest emphasis on a sale of Global Toys.

To that end, First Boston contacted 29 potential buyers for Global Toys, indicating that a confidential information memorandum was available. None of the 29 potential buyers was a so-called “strategic buyer” and apparently for good reason. At oral argument and in their briefs, the plaintiffs have been unable to identify any existing retailer that would have a plausible strategy for combining itself in a synergistic manner with Global Toys. Although some retailers had contacted First Boston when it first became clear that the Company was evaluating all of its strategic options, they had done so because of an interest in the Company’s real estate.

The 29 financial buyers First Boston contacted are a “who’s who” of private equity funds. Among them was Kohlberg Kravis & Roberts, which had signaled an interest in Global Toys, and, indeed, in the whole Company in August. Naturally, Cerberus and Apollo were included, along with other prominent names, like Bain Capital, CVC Capital Partners, and Blackstone.

By early October, 25 of the 29 potential buyers had signed confidentiality agreements in order to see the offering memorandum. On October 12, they were all invited to make preliminary bids by November 2, 2004. When the date for preliminary bids arrived, nine bids came in, some of which were consortia bids from private equity firms that had joined together as bidding partners. Of the bids, six were for Global Toys as a whole and three were for the international operations of Global Toys. Among the six Global Toys bidders were the Cerberus consortium (which by then was comprised of seven of the 25 offering memorandum recipients), Apollo (joined by one of the other 25 recipients), KKR, and a consortium comprised *988 of Bain Capital and Vornado (both of which were among the 25 recipients).

The Executive Committee met on November 3, 2004 to review the preliminary bids. During the portion of the minutes that briefly describe that review, it is stated: “In response to a question, [First Boston] indicated that none of the bidders expressed any interest in acquiring the Corporation [as a whole].” 10 That answer, however, was completely accurate only in one limited, albeit contextually important, respect.

Given the context, it is inferable that First Boston construed the question as relating narrowly to whether the written expressions of interest, received the day prior, included any indication of interest in the entire company. This possibility is heightened, of course, because some of the bidders had only bid for part of Global Toys. To the extent that First Boston understood and answered the question this narrowly, its response was accurate.

From the record before the court, it appears to be possible that the directors read this answer to mean something broader; namely, that none of the nine bidders had “expressed” in the more day-to-day, informal sense, any interest in making a bid for the whole company. As one of First Boston’s key bankers on the matter has admitted, the minutes are in that sense erroneous. By November, both Cerberus and KKR had already suggested that if they were going to buy Global Toys — which comprised the bulk of the Company’s sales and of its physical assets — -they might want to buy the whole enchilada. This possibility was not signaled to the Executive Committee by First Boston then.

What had become clear to the Executive Committee was that some of the preliminary bids for Global Toys seemed to be at very attractive levels. The sale of Global Toys therefore looked like the option for separation that would deliver the most value for Company stockholders. As a result, the Executive Committee decided to put the idea of a Babies “R” Us spin-off on hold pending the outcome of the sales process. Among the reasons for that decision was the recognition that any buyer of the Global Toys business would expect to negotiate the terms on which Global Toys would provide transitional overhead services (like distribution, information systems, etc.) to Babies “R” Us after a sale. Another obvious reason was that there would be no need for a spin-off of Babies “R” Us if Global Toys was sold, because Babies “R” Us would then exist as a standalone company owned by the Company’s existing stockholders anyway.

Consistent with earlier thinking, the Executive Committee resolved to pursue a sales process for Global Toys' that would culminate once the results from the 2004 Christmas shopping season were known. The Executive Committee believed that bidders would want to know those results before making final, binding bids.

Importantly, the Executive Committee also discussed candidly the notion that the bidders would necessarily want to meet with company management and might have an interest in keeping all or some of the key managers. Eyler agreed to instruct his subordinates that they could not discuss the possibility of working with any of the bidders until specifically authorized to do so by the board. Eyler also committed to share with the Executive Committee “any approaches he might receive from interested bidders and his attitude to working with any of them.” 11

*989 On November 18, the full board met and accepted the recommendation of the Executive Committee to proceed with a sale of Global Toys, and to defer any plan to spin off Babies “R” Us.

I. The Final Round Bidders For Global Toys Perform Extensive Due Diligence, Begin To Negotiate Specific Contract Terms, And Prepare To Make Final Bids

In December, a due diligence frenzy ensued. By the end of that process, four bidders were left — KKR, Cerberus, Apollo, and the Bain/Vornado group. That same month, Simpson Thaeher sent each of the four a draft asset purchase agreement and began to discuss terms with each of them.

On January 7, 2005, First Boston sent each of the final bidders instructions for submitting a final bid for Global Toys, with a deadline of February 15. In connection with that bid, it was significant that the Company’s results for the 2004 holiday season were improved from the year prior. Although these results would not normally be released until the Company announced them in its 10-K for the fiscal year ending January 29, 2005 in mid March, the plaintiffs concede that the final bidders were aware of this information, presumably as a part of their continuing due diligence investigation. As it turned out, the company needed to delay the release of these earnings beyond the anticipated March 17, 2005 release date because its accountants, Ernst & Young, indicated that the Sar-banes-Oxley Act raised some question about the way the company (and other retailers) traditionally accounted for leases. Although this new rule did not affect the Company’s operating results, it did affect its ability to complete its financial statements. To facilitate attractive bids, the Company shared the improved holiday results with each of the four bidding groups.

On January 21, the board met and authorized the Executive Committee to make day-to-day decisions about the sales process, in order to facilitate a timely response to developments as they arose. Consistent with that delegation, the Executive Committee met on February 9 to discuss Cerberus’s request to First Boston that it be permitted to bid for the entire company, not just Global Toys. Cerberus “did not wish to bid upon the entire Corporation if the Board of Directors would be opposed to such bid.” 12

The Executive Committee debated what to do about that overture:

After discussion, the Committee unanimously agreed that [First Boston] should advise the representatives from Cerberus that Cerberus should make a bid for [the Company] as originally outlined and communicated several months ago. In addition, the Committee agreed that Cerberus should not be discouraged from making a bid for the entire Corporation. 13

That position was communicated with Cerberus, giving it a green light to broaden the process’s focus.

On February 17, the four supposedly “final” bids came in, and had the following descending values:

• KKR — $3.407 billion or $13.62 per share;

• Apollo — $3.302 billion or $13.21 per share;

• Cerberus — $3.275 billion or $13.10 per share;

• Bain/Vornado — $3.183 billion or $12.73 per share.

*990 In addition to its bid for Global Toys, Cerberus offered to buy the whole Company for $23.25 per share, subject to due diligence on Babies “R” Us. Bain/Vornado also expressed an interest in buying the entire Company but did not state a price.

The Executive Committee met on February 21 to evaluate the bids. It considered them to be very attractive. Although the Committee was intrigued by Cerberus’s $23.25 bid, it did not consider that price to be sufficiently attractive to halt a push towards a sale of Global Toys. Rather, it resolvéd to remain open to an expression of interest in the whole company by Cerberus or any other of the final bidders that would cause it to rethink its position, but did not instruct First Boston to tell all the bidders to make a whole Company bid. Instead, First Boston was instructed to extract from the final bidders yet another “final” bid on Global Toys, while signaling, if asked, that the board would consider any whole Company offer with an open mind.

The plaintiffs consider this an important juncture in the process. Because some of the key bidders were trying to play strictly by the rules, in particular KKR, they did not concentrate on making a whole Company bid out of a concern that they would not be respecting the Company’s decision to concentrate on a sale of Global Toys. The plaintiffs believe that some bidders who were contacted earlier about buying Global Toys might have dropped out of the process early because they respected the Company’s decision not to market itself as a totality, and that they might have remained if they knew they could buy not just Global Toys, but the whole Company.

As will be discussed, that concern does not emerge as one that is grounded in economic logic or marketplace etiquette. 14 What is more likely is that a serious bidder like KKR, who wanted to come away at least with Global Toys, wished to conduct itself in a manner that was most conducive to that end. Absent a signal that a bid for the whole was sought, KKR decided to concentrate on presenting a bid for Global Toys.

In that regard, the plaintiffs point out another feature of KKR’s bidding strategy. In its February 17 bid, KKR had conditioned its offer on “retaining key members of management.” The plaintiffs say that this gave Eyler an expectancy that he could participate in any KKR buyout of Global Toys as a manager. But, the Company negotiated with KKR to eliminate this provision. Moreover, the record indicates that Eyler did his part to keep the process pristine, and refused to consider any offers by KKR or any other bidder until the board had concluded a deal.

J. “Final Final” Global Toys Bids Come In And Cerberus Throws A Curve Ball

The Company had received “final final” Global Toys bids by March 7. KKR increased its bid, such that its offer could result in proceeds to be paid out to the Company stockholders of $3.46 billion or $15.54 per share. KKR topped Cerberus’s bid by a small margin, and the Apollo and Bain/Vorhado bids by a greater increment.

The' board met on March 7 to consider this round of bids. In its presentation to the board, First Boston indicated that the KKR bid could generate a range in total value for Company shareholders of $24.23 to $26.56 per share. This assumed that Toys Japan was worth about $1.00 per *991 share and that the Babies “R” Us unit had a value of between $7.89 and $10.07 per share. In the meeting, the board focused on the fact that Babies “R” Us was likely to face increased annual operating costs of $85 million or more annually, and that for every $10 million those costs grew, the value of that business would decline by 30<p per share.

By the March 7 meeting, Cerberus had increased its offer slightly for the whole Company, indicating that it would pay $24 per share with due diligence on Babies “R” Us, and $23.25 without additional due diligence. Because KKR’s most recent Global Toys bid implied a value for the whole Company of at least $24.23 per share, the board was not interested in Cerberus’s latest proposal. Nevertheless, the proximity of Cerberus’s whole company bid to a value-maximizing level suggested that an attractive bid for the whole company might be had.

Therefore, the board had a specific discussion of the business risks associated with extending and/or opening up the bidding process. The board determined that the risk of losing the proverbial “birds in hand” — the very attractive bids for Global Toys — was too great for the board to tell the bidders that it was opening up the process either to allow the existing bidders to bid for the whole Company, much less the more drastic, time-consuming step of seeking a wider range of bidders to look at the whole Company. To the directors, it seemed entirely possible that the remaining bidders, who had invested in months and months of due diligence, and had submitted two rounds of multi-billion dollar “final bids,” might not tolerate the further delay that would result from a new market canvass and the inclusion of new parties who would have to do due diligence from scratch.

On the other hand, the directors were willing to take some measured risk, in order to leave open the possibility of obtaining a whole Company bid from the final set of bidders that would maximize shareholder value. To that end, the board decided that if Cerberus was willing to increase the price and closing certainty of its whole Company bid, then the Executive Committee could authorize the other bidders to make a similar bid. This would give the board a chance at its March 16 meeting to either proceed with a sale of Global Toys, knowing that was the best alternative, or a sale of the whole Company. The board feared that delaying the process much beyond that date risked the departure of some of the bidders.

K. Cerberus Ups The Ante To $25.25 For the Whole Company And The Final Bidders Are Invited To Join In An Auction For The Whole Company

That same evening, Cerberus, after discussions with First Boston, improved its whole Company offer to $25.25 per share, without a due diligence condition, and signaled that it might move that bid north. First Boston and Eyler discussed that bid, which was solidly within the range of values implied by KKR’s high bid for Global Toys.

What happened next is a source of some modest controversy. The plaintiffs fault Eyler and the Executive Committee for not meeting. But they slight what did, I conclude, most likely happen. Realizing that it was difficult to get the entire Executive Committee together at one time, Ey-ler called each of the members individually and spoke with them about the new development.

The new Cerberus bid was precisely the kind of development that the full board had just discussed the morning of March 7. Consistent with the approach the board had articulated, the Executive Committee members, in their discussions with Eyler, agreed that the new Cerberus bid justified taking the risk of asking the final bidders *992 to submit a bid for the whole Company, to be made after a rapid period of due diligence on Babies “R” Us. They reasoned that any likely bidder for the whole'Company would have had to have been interested in Global Toys, as that was the Company’s most valuable asset. Furthermore, through the existing due diligence process, the bidders already knew a lot about Babies “R” Us, and that business was not so complex that the bidders needed a lot of time to conduct due diligence on it.

On March 8, therefore, First Boston asked each of the final bidders to bid for the whole Company but to keep their Global Toys bids on the table. On March 10, the Wall Street Journal printed a story referencing the earlier $28.25 Cerberus bid, and indicating that Cerberus thought “it made no sense” to separate Global Toys from Babies “R” Us, “in part because the units share operations such as warehouses.” 15 The article made clear that the figure referenced might have been dated and that new higher bids might be on the table. The article also indicated that the Company had initially resisted Cerberus’s interest in the whole Company but that its resistance was “easing” and that it was now “talking further to the bidders.” The article further mentioned that KKR was also interested in the entire Company.

Given the nature of the article, any rational capitalist not in the bidding process, who somehow had missed the notion that the past year had been a propitious time to make a bid (solicited or not) for Toys “R” Us, would certainly realize that it was a great time to send in an expression of interest, asking to join in a