Revlon Duties
What does "Revlon Duties" mean in law?
Revlon duties arise when a corporation's board decides to sell the company or when a breakup of the corporation becomes inevitable, at which point the directors' fiduciary role shifts from preserving the corporate entity to maximizing the sale price for the benefit of shareholders. Named after the Delaware Supreme Court's decision in Revlon, Inc. v. MacAndrews & Forbes Holdings (1986), this standard requires the board to act as auctioneers charged with obtaining the best price reasonably available, rather than favoring one bidder or using defensive measures to entrench themselves. Revlon duties are triggered in sale-of-control transactions, including cash-out mergers and transactions that result in a change of control, but are not triggered by stock-for-stock mergers where control remains dispersed among public shareholders. A board that fails to conduct a reasonable market check or locks up a deal with a favored bidder without justification faces liability under this heightened standard.
Definition
Revlon duties arise when a corporation's board decides to sell the company or when a breakup of the corporation becomes inevitable, at which point the directors' fiduciary role shifts from preserving the corporate entity to maximizing the sale price for the benefit of shareholders. Named after the Delaware Supreme Court's decision in Revlon, Inc. v. MacAndrews & Forbes Holdings (1986), this standard requires the board to act as auctioneers charged with obtaining the best price reasonably available, rather than favoring one bidder or using defensive measures to entrench themselves. Revlon duties are triggered in sale-of-control transactions, including cash-out mergers and transactions that result in a change of control, but are not triggered by stock-for-stock mergers where control remains dispersed among public shareholders. A board that fails to conduct a reasonable market check or locks up a deal with a favored bidder without justification faces liability under this heightened standard.
Example
When the board agreed to sell the company to a private equity firm without soliciting competing bids or conducting a market check, shareholders argued the board breached its Revlon duties by failing to take reasonable steps to obtain the highest price available for shareholders.