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An Introduction to the Law of Corporations: Cases and Materials, Fall 2017

REVLON, INC., a Delaware corporation, Michel C. Bergerac, Simon Aldewereld, Sander P. Alexander, Jay I. Bennett, Irving J. Bottner, Jacob Burns, Lewis L. Glucksman, John Loudon, Aileen Mehle, Samuel L. Simmons, Ian R. Wilson, Paul P. Woolard, Ezra K. Zilkha, Forstmann Little & Co., a New York limited partnership, and Forstmann Little & Co. Subordinated Debt and Equity Management Buyout Partnership-II, a New York limited partnership, Defendants Below, Appellants, v. MacANDREWS & FORBES HOLDINGS,

Headnote

When a board, under Unocal, is asked to justify its decision to adopt defensive measures by identifying some threat to the corporation or corporate policy, the board generally has broad discretion in identifying the threat. The court in Unocal noted that boards may be permitted to consider "the impact on “constituencies” other than shareholders (i.e., creditors, customers, employees, and perhaps even the community generally)". That is to say, the board is permitted to take a long term view and consider the potential impact of a threat on the many constituencies that the corporation requires over the long term.

Revlon provides us with an alternative application of Unocal's intermediate standard. In situations like Revlon where the board has decided of its own accord to look to the short term by engaging in a sale of control of the corporation, then the board may no longer consider long term constituencies. When the board has focused on the short term, then the only cogniziable threat to corporate policy are those that affect value in the short term. If a board in a Revlon-like situation adopts defenses, it will have to justify them as reasonable in relation to the threat posed to the corporation in the short run. 

In the Revlon opinion that follows notice how the court applies Unocal's intermediate standard before and after a break up of the corporation becomes imminent.