Corporations (Corporate Law)
506 A.2d 173 (Del. 1986)
Study notes for Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc.: professor notes, cold call prep, exam angles, and memory aids.
Once a corporation is in a sale process, directors have a duty to maximize shareholder value.
In Revlon, Inc. v. MacAndrews & Forbes Holdings, the Delaware Supreme Court articulated the principle that once a corporation is in a sale mode, the board of directors has a fiduciary duty to maximize shareholder value. This case is pivotal because it highlights the shift in a board's responsibilities from managing the company for its current operational success to prioritizing shareholder interests during a sale process. The board's conduct in favoring one bidder and implementing restrictive measures such as a no-shop provision breached those fiduciary duties and set an important precedent regarding board actions in takeovers.
Furthermore, the Court's decision emphasizes the necessity for boards to act in good faith and to remain impartial during negotiations, especially when faced with competing offers. The rejection of the board's decisions and the enforcement of injunctions against the protective provisions underscore the judicial scrutiny applied to directors' actions to ensure they align with the intent to maximize value for stockholders.
Revlon Rule: 'In a sale, prioritize value, not bias; directors must aim high to comply with their fiduciary duty.'
| Case | Distinction |
|---|---|
| Unocal Corp. v. Mesa Petroleum Co. | Unocal discusses defensive measures a board can take to protect against hostile bids, while Revlon focuses on the duty to maximize value once a sale becomes inevitable. |
| Paramount Communications, Inc. v. Time Inc. | Paramount emphasizes that directors can consider non-financial factors in their decisions, while Revlon holds that direct consideration of maximum price for shareholders is paramount in a sale context. |
Maximizing shareholder value ensures that directors act in the best interests of the owners of the company, preserving the principle of fiduciary duty.
Strict adherence to maximizing share price may undermine considerations for long-term value, employee relations, or other stakeholders, causing broader harm.
This case often appears in exams focusing on the fiduciary duties of corporate directors, specifically in the context of mergers and acquisitions. Students may be asked to analyze fact patterns involving competing bids and the board's response to those bids.