The Revlon Divergence: Evolution of Judicial Review of Merger Litigation

61 Pages Posted: 10 Nov 2018

Date Written: 2018

Abstract

For over thirty years, stockholder lawsuits challenging mergers predominantly have been governed by the principles formulated in the seminal Revlon decision issued by the Delaware Supreme Court in 1986, which held that boards of directors engaging in a change-in-control transaction have a fiduciary obligation to seek the highest value reasonably available. A series of recent decisions by the Delaware courts, however, caused three significant alterations to judicial review of merger litigation. This Article is a detailed analysis of the cumulative effects of those changes, which are dramatic. Whereas previously the same level of scrutiny applied to all lawsuits challenging mergers approved by independent boards, the contemporary doctrine has diverged into a weak form of review that applies to most cases and a strong version of Revlon that affects, in an outcome-determinative way, a small number of cases. The “classic” version of Revlon exists now only as a residual category capturing misfit cases that do not satisfy the requirements of the new regime. This doctrinal shift empowers stockholders while placing conflicted fiduciaries and corporate advisors in the plaintiffs’ crosshairs.

Keywords: fiduciary duties, fiduciary duty, mergers, M&A, merger litigation, stockholder litigation, shareholder litigation, Corwin, Revlon, ratification, enhanced scrutiny, business judgment, Chancery, Delaware, C & J, disclosure, Rural Metro

Suggested Citation

Mordue, Brandon, The Revlon Divergence: Evolution of Judicial Review of Merger Litigation (2018). 12 Va. L. & Bus. Rev. 531 (2018), Available at SSRN: https://ssrn.com/abstract=3271080

Brandon Mordue (Contact Author)

Kushner & Hamed Co., LPA ( email )

One Cleveland Center
1375 East Ninth Street, Suite 1930
Cleveland, OH 44114
United States

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