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.

What Is 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.

What Process Supports Satisfy 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 Does Revlon Matter 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.

How Does Revlon Relate to the Unocal Doctrine?

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.

What Should You Check on Exam Day?

• Remember that Revlon duties apply only once a sale of control is inevitable, not while a board is still weighing whether to stay independent.
• Know the standard is "best price reasonably available," not "highest possible price."
• Recognize the process supports: independent fairness opinion, fiduciary-out clause, no-shop with fiduciary out, window-shop rights, go-shop period, and a modest termination fee.
• Remember that market termination fees run 2-4% of equity value; higher amounts risk a challenge as deterring competing bids.
• Know that a "no-shop" restricts post-signing solicitation, while a pre-signing market check (the auction) is a separate concept.
• Remember that Revlon (sale-of-control duty) and Unocal (defensive-measure proportionality) are companion Delaware doctrines, neither tested at the case-law level.