Tuesday, March 29, 2011
Whenever I teach Revlon, I'll admit there is a tension. On the one hand, it's very tempting to simply say that when we're in Revlon-land, boards are required to turn into "auctioneers" and take the highest price they can get. On the other hand, that simple answer wouldn't be exactly correct. Revlon duties - to the extent there are any - are more subtle than that. Footnote 3 of Wells Fargo & Co. v. First Interstate Bancorp has a nice statement of what "Revlon duties" are:
What I take to be distinctive about this state of affairs [when “Revlon” duties apply] is three things principally. First, in this situation the board must seek to achieve greatest available current value; it may not, in effect, trade achievable current value for a prospect of greater future value, as it may normally do in the exercise of its good faith business judgment. Historically, one would say that courts would be slow to impose this limitation except in limited circumstances. See Robinson v. Pittsburgh Oil Refining Corp., Del.Ch., 126 A.2d 46 (1924). And indeed despite the fact that commentators tended to treat the Revlon case as revolutionary, recent cases have made clear that it did not deviate from this tradition very greatly. Second, when in this situation, a board's duty to be informed will require it to fully consider alternative transactions offered by any responsible buyer. Third, in part “Revlon duties” are not distinctive board duties at all, but a changed standard of judicial review. That is when “Revlon duties” are triggered a burden will shift to the directors and the court will undertake more active review of the traditional directorial duties of care and loyalty under a reasonableness standard. Paramount Communications v. QVC Network, Del.Supr., 637 A.2d 34 (1993).
Rather than create a special series of duties, Revlon falls within the established fiduciary duties of care that a board already has. More than anything else, Revlon takes the discretion of timing out of the hands of the board, but still leaves them with plenty of decisions to make and evaluates those board decisions against a reasonableness standard.