Quick Answer
The buyer's board operates under fiduciary duties throughout the transaction. The business-judgment rule is the default: informed, disinterested, good-faith board decisions receive judicial deference. The Unocal duty (enhanced scrutiny for target defensive measures) and Revlon duty (target board's duty to maximize price when a sale is inevitable) apply primarily to target-side conduct, but they shape the target-side dynamics the buy-side faces.
Buyer-side fiduciary cases are less famous than the Revlon-line target cases, but the same Delaware framework applies. The banker has to understand the framework to interpret target-side board behavior and to support the buyer's own board in its decision-making.
The Business-Judgment Rule (Default)
The business-judgment rule presumes that directors acted on an informed basis, in good faith, and in the honest belief that the action was in the best interests of the company.
- Deference standard: courts will not second-guess a board decision if the directors were informed, disinterested, and acted in good faith
- The "informed" prong: the banker's valuation work and fairness opinion help establish that the directors had adequate information
- Buyer board's typical role: approving the acquisition, the financing, and the consideration mix; receiving the fairness opinion; documenting deliberation in the board minutes
Think of it this way: the business-judgment rule is the default protection for directors who do their homework. It is not a free pass: directors must show they were informed, disinterested, and acting in good faith. The fairness opinion and the valuation deck are the principal exhibits proving the "informed" prong.
The Unocal / Revlon Framework
Two related doctrines from Delaware case law shape the M&A landscape. Both apply primarily to target-side boards, but the buy-side banker uses them as a diagnostic for what to expect from the target.
| Duty | Trigger | Effect | Relevance to the Buy-Side Banker |
|---|---|---|---|
| Unocal duty | Target board adopts defensive measures in response to a hostile bid (or perceived threat of one) | Enhanced scrutiny: target board must show the response is reasonable in relation to the threat | Diagnostic for whether the target will fight a hostile approach |
| Revlon duty | Target board's decision triggers the inevitability of a sale of the company (all-cash deals, deals with a single controlling stockholder post-close, or definitive breakup) | Target board's duty shifts to maximizing PRICE for shareholders | Determines target-side process dynamics the buyer faces |
- Both doctrines are Delaware CASE LAW, not statutes
- Both apply to Delaware-incorporated targets: incorporation state determines the governing law for board fiduciary duties
Exam Tip: Gotchas
- Unocal and Revlon are TARGET-side duties. They do not directly govern the buyer's board. They shape the buyer's expectations of how the target board will behave: Unocal predicts defensive posture in a hostile approach; Revlon predicts price-maximization posture once sale is inevitable.
- Revlon is triggered by sale INEVITABILITY, not by sale OFFER. A buy-side bid in a friendly process does not trigger Revlon unless the target board has decided that a change-of-control sale is the path it will pursue. Once Revlon attaches, the target board's duty to its shareholders is to get the highest price; that constrains the target's willingness to accept exclusivity, break-fee, or no-shop provisions that favor the lead bidder.
- All-cash deals tend to trigger Revlon faster than mixed-consideration deals because a cash deal definitively ends the existing shareholders' continuing equity interest. A stock-for-stock deal that preserves continuing equity participation is more likely to be evaluated under the business-judgment rule than under Revlon.
How the Buy-Side Banker Uses the Framework
The framework gives the buy-side banker three concrete deliverables.
- Reading target behavior: when the target board adopts defensive measures, the banker reads it as Unocal-driven and adjusts the approach (friendly versus hostile, price increase, structural concession)
- Anticipating target process dynamics: once Revlon attaches, the banker expects the target to run a fuller market check, resist exclusivity, and push for higher closing certainty
- Supporting the buyer board's own decision-making: the valuation work, fairness opinion, and diligence record support the "informed" prong of the business-judgment-rule defense for the buyer board's approval of the deal
Exam Tip: Gotchas
- The "informed" prong of the business-judgment rule is where the banker's work matters most. A board that approves a deal without adequate valuation analysis, without a fairness opinion (when one is warranted), and without documented deliberation is vulnerable to a duty-of-care challenge. The banker's deliverables are the principal documentary evidence the directors did their homework.