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?
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.
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