April 24, 2011
Revlon Duties Are Inapplicable When Control Stays in the Market (But Which Market?)
Steven Davidoff has a nice post up over at DealBook, explaining why the NYSE board likely remains under no duty to sell itself to the highest bidder despite what appears to be an active bidding process between Nasdaq and the Deutsche Borse. He notes, however, that the particular facts may raise at least one interesting issue under Delaware law: Does the location of the market matter if a board is relying on the proposition that there is no duty to sell to the highest bidder because, as the Time & QVC courts put it, control stays in "a fluid aggregation of unaffiliated shareholders representing a voting majority—in other words, in the market"? Notes Davidoff:
[E]ven under current case-law, there is a thread of an argument that the Revlon doctrine should apply to the NYSE/Deutsche Börse transaction. The reason is that the combined NYSE/Deutsche Börse will be incorporated in the Netherlands. In acquisitions involving foreign reincorporations, there is a tendency for “flowback.” American shareholders will sell their shares simply because they do not want to own shares of a foreign company. Shares will flow back to the foreign exchange.
In other words, is the relevant market the global market or just the US market? Interesting question. My guess is that if a Delaware court were confronted with the issue, it would rule in favor of finding no meaningful change of control where ownership was effectively transferred from the US public market to some foreign public market--if for no other reason than there does not appear to be anything in the underlying opinions to require such a distinction, and to recognize such a distinction would limit directorial discretion ... something Delaware courts are generally loathe to do absent some compelling necessity. Not to mention the fact that flowback appears to be more about what shareholders do with their ownership stakes in the new combined entity after the deal is consummated, as opposed to what they are forced to accept in the first instance. Perhaps most importantly, no wasted control premium appears to be implicated by the current deal. Then again, a surprising decision in this line of cases would not really be anything new.