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The Geography of Revlon-Land in Cash and Mixed Consideration Transactions: A Response to Professor Bainbridge

The following comes to us from Mohsen Manesh, an Assistant Professor at the University of Oregon School of Law.

In the recently published The Geography of Revlon-Land,[1] Professor Stephen Bainbridge attempts to crisply delineate the boundaries and contours of the evolving doctrine first articulated by the Delaware Supreme Court in Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc.[2]— or Revlon-land, more colloquially. The Revlon doctrine famously dictates that in certain transactions involving the “sale or change in control” of a corporation, the corporation’s board of directors has a duty to “get[] the best price for the stockholders.” What constitutes a “sale or change in control” is thus a crucial legal question. Because when a board of directors enters Revlon-land, the board loses the presumption of the deferential business judgment rule and becomes subject to enhanced judicial scrutiny under an objective standard of reasonableness.

In Bainbridge’s telling, Revlon is the logical extension of earlier corporate takeover jurisprudence, namely Unocal v. Mesa Petroleum,[3] which introduced an intermediate standard of judicial review to police the potential self-interest that may drive the decisions of a target board of directors.  With this understanding, Bainbridge then decries a string of Delaware Chancery Court decisions—beginning with In re Lukens, Inc.,[4] and culminating with In re Smurfit-Stone Container Corp.[5]— that apply the Revlon doctrine to transactions in which a target corporation is sold for cash or a mix of cash and the stock of a publicly traded, diffusely held acquirer that is without a controlling shareholder.  These chancery court decisions, Bainbridge argues, wrongly focus on the nature of the consideration paid in the transaction, rather than the potential conflicts of interests that may be present between the target’s board of directors and its shareholders. These decisions have thus muddled the boundaries of Revlon-land. They are inconsistent with the conflict-of-interest rationale underlying the Revlon doctrine, he claims, as well as subsequent Delaware Supreme Court precedent applying it.

As I demonstrate in a draft paper, however, there are several problems with Bainbridge’s analysis. First, despite what Bainbridge contends, neither Lukens nor Smurfit-Stone is novel in suggesting that an all-cash transaction is a “sale or change in control” that categorically triggers Revlon duties. Indeed, several chancery court decisions, both before and after Lukens and Smurfit-Stone, have confirmed this conventional wisdom.

Second, with respect to mixed consideration transactions, strictly speaking, neither Lukens nor Smurfit-Stone held that Revlon applies to such transactions. Rather, the court’s consideration of the Revlon question in each opinion was nonbinding dicta, unnecessary for the court’s ultimate decision. The same is true of subsequent chancery court case law addressing mixed consideration transactions, specifically Chancellor Strine’s more recent In re Synthes, Inc. decision.[6] Together, the dicta of these three opinions suggest that Revlon applies to any “sale” transaction where cash represents a substantial portion of the consideration to be paid to the shareholders of the target corporation. But each time, this principle has been articulated only in nonbinding dicta.

Third, nothing in the Delaware Supreme Court’s post-Revlon precedent contradicts the dicta of these three chancery court opinions. In particular, Bainbridge cites four high court decisions in support of his position: Time-Warner,[7] QVC,[8] Santa Fe Pacific,[9] and Lyondell Chemical.[10] But none of these cases expressly embraces Bainbridge’s conflicts-of-interests theory of Revlon. More importantly, none of these cases presented the Delaware Supreme Court with a transactional context like that presented in Lukens and Smurfit-Stone. Indeed, rather than contradict Lukens and its chancery court progeny, the high court summarily affirmed the Lukens decision “on the basis of and for the reasons assigned by the Court of Chancery in its well-reasoned opinion.”[11]

Beyond a simple focus on the potential for conflicts of interests, what Delaware Supreme Court precedents actually reveal is that the Revlon doctrine is animated by a mishmash of policy concerns. These concerns span the fiduciary duties of care and loyalty and even the fundamental structure of corporate law—that boards (and not courts) manage the business and affairs of the corporation subject to the shareholders’ right to elect the directors. Revlon addresses not only the “omnipresent specter of director self-interest; it addresses the potential for “slothful indifference” by sometimes “torpid, if not supine” fiduciaries vested with control over the assets of shareholders. Thus, as a doctrinal matter, Revlon is as much the evolutionary descendant of Unocal as it is of Unocal’s more infamous brethren, Smith v. Van Gorkom.

Given the myriad policy concerns that animate Revlon, it is unsurprising that the geography of Revlon-land is not crisply defined by Delaware Supreme Court precedent. And given this uncertainty, it is further unsurprising that the Delaware Chancery Court has taken on the difficult, but crucial, project of defining the outer boundaries and inner contours of Revlon-land through judicial dictum.

In a separate forthcoming article,[12] I explore the Delaware courts’ penchant for the strategic use of dictum. This established judicial practice, I explain, serves valuable guidance, regulatory and responsiveness functions, which have been vital to Delaware’s success in attracting corporate and alternative entity charters.

The chancery court decisions involving mixed consideration transactions—Lukens, Smurfit-Stone and most recently Synthes—exemplify the court’s strategic use of dictum as well as the guidance function served by the practice. As reflected in successive ABA Deal Points Studies, mixed consideration mergers have in recent years represented nearly a quarter of all strategic acquisitions involving public corporations.

Mergers involving a Publicly Traded Target and a Publicly Traded or other Strategic Acquirer


Consideration Paid to Target Shareholders



All Cash

All Stock
































Weighted Average




Yet, surprisingly, existing Delaware Supreme Court precedent provides scant guidance as to the applicability of Revlon to such transactions.  In the absence of a definitive answer or predictable framework in supreme court precedent, the chancery court in its Lukens, Smurfit-Stone and Synthes decisions has cautiously, but purposefully, used dictum to fill a gap left by the supreme court’s Revlon jurisprudence with respect to transactions involving mixed consideration.

Certainly, one may disagree with the content and conclusions of such dictum, as Bainbridge does. But in the wake of the Delaware Supreme Court’s indeterminate Revlon precedents, the chancery court has through the use of dictum provided some stability and predictability where the law is otherwise uncertain. For this, the chancery court should be commended.

The full text of the draft article responding to Professor Bainbridge regarding the applicability Revlon to cash and mixed consideration transactions is available here.

And the full text of the separate forthcoming article describing the valuable guidance, regulatory and responsiveness functions of dictum in Delaware law is available here.

[1] Stephen M. Bainbridge, The Geography of Revlon-Land, 81 Fordham L. Rev. 3277 (2013).

[2] 506 A.2d 173 (Del. 1986).

[3] 493 A.2d 946 (Del. 1985).

[4] 757 A.2d 720 (Del. Ch. 1999) (Lamb, V.C.)

[5] 2009 WL 3206051 (Del. Ch. Sept. 30, 2009) (Noble, V.C.)

[6] In re Synthes, Inc. S’holder Litig, 50 A.3d 1022 (Del. Ch. 2012) (Strine, C.).

[7] Paramount Comm., Inc. v. Time Inc., 571 A.2d 1140, 1142 (Del. 1990).

[8] Paramount Comm. Inc. v. QVC Network Inc., 637 A.2d 34 (Del. 1994).

[9] In re Santa Fe Pac. Corp. S’holder Litig., 669 A.2d 59 (Del. 1995).

[10] Lyondell Chem. Co. v. Ryan, 970 A.2d 235 (Del. 2009).

[11] Walker v. Lukens, Inc., 757 A.2d 1278 (Del. 2000) (unpublished table decision) (emphasis added) (affirming In re Lukens Inc. after considering oral arguments and briefs by the litigants).

[12] See Mohsen Manesh, Damning Dictum: The Default Duty Debate in Delaware, 39 J. Corp. L. (forthcoming 2013), available at

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