As regular readers know, I am working on several projects relating to the tentative draft of the restatement of the Law of Corporate Governance. As I've plowed through the draft, I noticed that the drafters touch in passing on the geography of Revlon-land.
Reporter’s Note 3 to Section 2.01 comments in passing on the issue of when Revlon duties trigger, suggesting that “when a corporation is sold for cash” and “all of the shareholders will be cashed out” “the board may not balance the interests of shareholders against the interests of other stakeholders. This is the clear holding of Delaware’s Revlon case and a long line of other cases.” It is true that Revlon clearly held that when Revlon duties have triggered, there can be no consideration of interests other than those of the shareholders.
The implicit suggestion that Revlon is always triggered by a sale for cash, however, is controversial. True, dictum in some Delaware Chancery Court decisions suggest that that all cash and some mixed consideration sales trigger Revlon.[1]I have elsewhere argued that those decisions are inconsistent with controlling Delaware Supreme Court precedent.[2] In my view, the relevant Supreme Court precedents clearly indicate “that an acquisition by a publicly held corporation with no controlling shareholder that results in the combined corporate entity being owned by dispersed shareholders in the proverbial “large, fluid, changeable and changing market” does not trigger Revlon whether the deal is structured as all stock, all cash, or somewhere in the middle. The form of consideration is simply irrelevant.”[3]
I have also argued that the Chancery Court dicta is inconsistent with the policy concerns that motivated Revlon.[4]The Chancery Court dicta is premised on the notion that Revlon is concerned with “whether there will be a tomorrow for the shareholders,” but Revlon was mainly concerned with whether the structure of the transaction allows the market to redress any conflicts of interest on the part of the target directors.[5] As long as the acquirer is publicly held, the conflict of interest concerns are muted and “diversified shareholders will be indifferent as to the allocations of gains between the parties. In turn, those shareholders also will be indifferent as to the form of consideration.”[6] It is that approach to Revlonduties that the drafters should restate.
[1] See Mohsen Manesh, Defined by Dictum: The Geography of Revlon-Land in Cash and Mixed Consideration Transactions, 59 Vill. L. Rev. 1, 13 (2014) (discussing Chancery court dicta suggesting that “a mixed consideration merger triggers Revlon duties).
[2] Stephen M. Bainbridge, The Geography of Revlon-Land, 81 Fordham L. Rev. 3277, 3331-33 (2013).
[3] Id.
[4] Id. at 3333-35.
[5] Id. at 3334.
[6] Id. at 3335.
