Revlon Rule

The so-called Revlon rule is a legal precedent derived from a case involving the sale of Revlon, Inc. (Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., Supreme Court of Delaware, 1985, 506 A.2d 173). In that case, Revlon’s board fought off a hostile takeover bid by employing a series of defenses and ultimately accepted a lower bid from a white knight. The Delaware court found that Revlon’s directors had violated their fiduciary duty of care to their shareholders by accepting the white knight’s bid.

The Revlon rule requires boards of companies that are to be sold to conduct the sale in such a way as to reach a deal that most benefits the corporation’s shareholders. Essentially, when it becomes clear that a corporation is going to be sold, long term corporate plans and interests are set aside and the board acts merely as “auctioneers” on the shareholder’ behalf. The case set conditions under which a board must take the higher bid declaring that when there are two or more buyers in an all-cash deal and the bidders have the necessary financing. For example, The Court found that the board was in violation of its Revlon fiduciary duties by favoring the group’s bid.

Revlon Moment – denotes a standard in corporate law that holds when the takeover of a corporation becomes inevitable, that corporation’s board of directors has a duty to maximize shareholder value.