M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Wednesday, October 14, 2009

Triggering Revlon Duties

It's a recurring question.  We know that an all cash transaction will constitute a change of control and thus require directors attempt to get the highest price reasonably available for the benefit of target shareholders. A stock-for-stock deal where the shareholders of the target remain in the fluid aggregate doesn't constitute a change of control, so directors are free to take into considerations other issues when deciding whether to accept an offer.  But what if you are taking a combination of stock and cash - how much cash will result in Revlon duties being triggered?

Delaware courts have been helpfully ambiguous in answering this question.  On the one hand, In In re Santa Fe Pacific Corp Shareholder Litigation the Supreme Court held that Revlon duties are not triggered when the target accepts consideration of 33% cash and 67% stock.  On the other hand, accepting 60% cash and 40% stock will trigger Revlon duties (In re Lukens Inc. Shareholders Litigation).

In In re NYMEX Shareholder Litigation, the chancery court had chance to slap down another data-point to help narrow the band of when Revlon duties might be triggered.  In the NYMEX-CME transaction, at the time the board initially approved the transaction, NYMEX shareholders were to receive 36% cash and 64% CME stock.  Whether Revlon was triggered by this consideration mix was an issue of some debate between the parties when they were before the court.  

Vice Chancellor Noble declined to rule on the question.  He could have moved the needle just a little bit by finding that 36% cash was insufficient to trigger Revlon.  But, I suppose he felt that discretion was the better part of valor and decided the case on other grounds.

So to the question, how much cash will trigger Revlon duties, the answer remains: "It depends."



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