Revlon Duties (Background, Not Tested Substantively)

The Revlon doctrine is the legal backdrop that shapes every sell-side process the banker runs. It is not a Series 79 testable topic at the case-law level, but the deal-protection provisions, fairness opinion mechanics, and auction design are all Revlon-driven.

The Revlon Standard

The Revlon doctrine arises from Delaware case law. When a sale of control is inevitable, the target board's fiduciary duty shifts.

The standard formulation:

• When a sale of control is inevitable (or the board has decided to sell), the target's board duty shifts from preserving the corporation as a going concern to obtaining the best price reasonably available for shareholders
• The board cannot favor a friendly bidder over a higher bidder absent a defensible reason
• The board must run a process that supports its judgment that the deal maximizes shareholder value

What "best price reasonably available" requires:

• A reasonable basis to conclude the deal maximizes value
• No specific pre-signing market-check is mandated by Delaware law
• A "market check" (running a competitive auction or surveying potential bidders) is the standard way to satisfy the duty
• A "no market check" deal needs other process supports (a fiduciary-out clause, a go-shop period, a fairness opinion from an independent banker)

Exam Tip: Gotchas

• Revlon applies only when a sale of control is INEVITABLE. A board considering strategic alternatives, including the possibility of staying independent, does not yet have Revlon obligations. The duty shifts once the board commits to the sale path.
• "Best price reasonably available" is the standard, NOT "highest possible price." Boards have discretion to weigh certainty of close, social issues, and other non-price factors, as long as they can defend a reasonable basis for the judgment.

Process Supports for Revlon Compliance

Bankers and counsel design the deal process to satisfy the Revlon standard. Common process supports include:

• Independent fairness opinion: A separate bank's opinion that the consideration is fair from a financial point of view; supports the board's good-faith judgment
• Fiduciary-out clause: A provision in the merger agreement allowing the target board to change its recommendation in response to a superior proposal, subject to the buyer's matching rights
• No-shop with fiduciary out: The target agrees not to solicit other bids but can respond to unsolicited superior proposals
• Window-shop rights: A short post-signing period during which the target board can solicit competing bids
• Modest termination fee: A break-up fee paid to the buyer if the seller terminates for a superior proposal; market practice is typically 2-4% of equity value; higher amounts can be challenged as deterring competing bids
• Go-shop period: A post-signing window (typically 30-50 days) during which the target board actively solicits competing bids

Exam Tip: Gotchas

• A "no-shop" is not the same as a "no-market-check." A no-shop in the merger agreement means the seller agrees not to solicit other bids AFTER signing. A pre-signing market check (the auction process) is a separate question.
• Termination fees deter competing bids. A termination fee of 5%+ may be challenged in Delaware as deterring superior proposals; 2-4% is the standard range.
• A fiduciary out is the deal-protection provision that lets the target board change its recommendation in response to a superior proposal. Without it, the target board is locked into the recommended bid even if a higher bid emerges.

Why This Matters for the Banker

Even though Delaware fiduciary law is not a Series 79 testable topic at the case-law level, every banker process assumes Revlon-compliant design:

• The broad-auction or targeted-auction structure is the most common market-check method, satisfying Revlon's "best price reasonably available" standard
• The fairness opinion is presented to the board at the approval meeting partly to support Revlon-compliant judgment
• The fiduciary-out and termination-fee provisions in the merger agreement are designed to allow the board to respond to a superior proposal without breaching the buyer's contract

The banker's auction design is, in effect, a Revlon defense built in advance. A seller's board that runs a clean auction with a fairness opinion and a modest termination fee has a strong record of process compliance if the deal is later challenged.

Cross-Reference

The Unocal doctrine (Delaware case law on defensive measures) and the Revlon doctrine (Delaware case law on the sale-of-control duty) are companion bodies of fiduciary law. The Unocal "proportionality" standard governs defensive measures (poison pills, staggered boards); Revlon governs the sale process. Both are background concepts for the Series 79; neither is tested at the case-law level.