506 A.2d 173 (Del. 1986)
Revlon, Inc. v.
Once a sale or break-up of the company became inevitable, did Revlon's directors breach their fiduciary duties by favoring Forstmann through a lock-up, no-shop, and related measures, and by prioritizing noteholder interests, rather than maximizing the company's sale price for stockholders?
Under Delaware law, when the sale or break-up of a company becomes inevitable, the directors' role changes from defenders of the corporate bastion to auctioneers charged with getting the best price reasonably available for stockholders. In this Revlon mode, directors may not consider other constituencies (such as creditors or noteholders) at the expense of stockholder value, and they may not employ defensive or deal-protection measures that preclude or materially impede a fair, competitive bidding process. While directors retain latitude to design the sale process, their actions are subject to enhanced scrutiny and must be reasonable in relation to the objective of maximizing immediate stockholder value.
Yes. The Delaware Supreme Court held that once Revlon placed itself in a sale mode, the directors had a duty to obtain the highest value reasonably available. By favoring Forstmann with a crown-jewel lock-up, a restrictive no-shop, and other protections that ended active bidding in the face of a higher offer, and by focusing on protecting noteholders rather than stockholders, the board breached its fiduciary duties. The Court enjoined enforcement of the lock-up, the no-shop, and related provisions.
Revlon established that directors' fiduciary duties are context-specific. When a company is for sale or a break-up is inevitable, directors must maximize immediate stockholder value and cannot privilege other constituencies or entrenchment motives. The case also anchors judicial review of deal protections: lock-ups, no-shops, and similar devices may be invalid if they preclude or seriously impede a competitive auction without demonstrable benefits to stockholders. For law students, Revlon is essential to understanding enhanced scrutiny, the transition from Unocal defenses to sale-of-control obligations, and how later cases (such as Paramount v. Time and Paramount v. QVC) delineate when Revlon duties apply.