July 29, 2009
What must a Board do to satisfy its Revlon duties?
Milbank, Tweed reviews the decision of the Delaware Court of Chancery in Police & Fire Ret. Sys. of the City of Detroit v. Bernal, et al. and concludes
[The Delaware Supreme Court’s recent decision in Lyondell Chemical Company v. Ryan] confirmed that directors may aggressively pursue a transaction that they determine in good faith to be beneficial to shareholders, despite the absence of an auction process, so long as their actions are reasonable and aimed at obtaining the best available price for shareholders. However, . . . the language used by the Court in Bernal certainly suggests that when a company has attracted more than one bidder, the best way for a board to satisfy its Revlon duties and maximize shareholder value is to follow a robust sale or auction process that avoids taking actions that could be perceived as favoring one bidder over another. As Court of Chancery decisions in recent years have demonstrated, when only one bidder exists, Delaware Courts are reluctant to upset the deal and risk losing an attractive opportunity for target company shareholders. In contrast, when more than one bidder is involved, Delaware Courts are more comfortable scrutinizing a deal and taking steps to permit an auction to continue.
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Thanks for the link, Mike. This is helpful. The note suggests that there are two types of Revlon duties - those that exist when there is only a single bidder and those that exist when there is more than one bidder. But why should it make a difference that more than one bidder is in the picture? If, as Lyondell suggests, the starting point is business judgment and only an utter failure to attempt to secure maximum value will cause directors to run afoul of their obligations under Revlon, then why treat the two situations differently? It strikes me that a plausible argument can be made that a director in preferring one bidder over another in an all cash transaction is "attempting" to secure maximum value.
Posted by: Brian | Jul 29, 2009 9:50:33 AM
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Posted by: Alan | Dec 28, 2009 7:25:30 AM