Defined by Dictum: The Geography of Revlon-Land in Cash and Mixed Consideration Transactions

Abstract

Anyone familiar with corporate law knows well how much of that law has been shaped by just one state: Delaware. Less obvious, however, is that so much of Delaware corporate law has been defined by the nonbinding dictum of that state’s judges. To illustrate this point, this Article considers the central role of dictum in the evolving doctrine first articulated by the Delaware Supreme Court in Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. And in doing so, this Article refutes the thesis, recently advanced by Professor Stephen Bainbridge, that a judicial concern for director conflicts of interests, alone, is what animates the Revlon doctrine.

Employing a conflict-of-interests understanding of Revlon, Bainbridge decries a string of Delaware Chancery Court opinions that have applied Revlon to transactions in which a target corporation is sold for cash or a mix of cash and stock in a publicly traded, diffusely held acquirer. In constructing his critique, however, Bainbridge overstates the chancery court precedent with which he takes issue as well as the supreme court precedent upon which he bases his conflict-of-interests thesis. In reality, the boundaries of Revlon-land are murky. Left uncertain by Delaware Supreme Court precedent, the scope of the Revlon doctrine has been purposefully, but cautiously, defined by the Delaware Chancery Court through the use of dictum. 

Keywords: corporate law, corporate governance, fiduciary duties, Delaware, mergers and acquisitions, M&A, Revlon, Revlon-Land, Revlon duties, chancery court, dicta, dictum, holding, Stephen Bainbridge

JEL Classification: G34