In a recent New York Superior Court decision applying Delaware Law, the court held that what are known as the “Revlon Duties” do not apply in a stock for stock merger where there is no true change of control.
In the specific case, the stock merger resulted in a combined corporation in which there was no controlling shareholder, only a larger group of non-controlling shareholders. This was key to the decision as the language of the court decision makes clear:
“In the context of a stock-for-stock merger, a change of control for Revlon purposes can be triggered if the target’s shareholders are relegated to a minority in the resulting entity, and the resulting entity has a controlling stockholder or stockholder group. Where, however, ownership of the merged company will remain in “a large, fluid, changeable and changing market,” Revlon is not implicated.”(1)
Rather than holding the corporation’s board’s decision to approve the merger to the standards in “Revlon”, the board’s decision was held to the standards of the business judgement rule which defers to the judgement of the board if it acts in an informed basis, in good faith, and in the honest belief that its actions are in the best interests of the company.
(1) Badowski, at *7 (citing, inter alia, Arnold v. Society for Savings Bancorp. Inc., 650 A.2d 1270, 1290 (Del 2009); Smurfit-Stone Container Corp. S’holder Litig., No. 6164-VCP, 2011 WL 2028076, *12 n. 92 (Del Ch. May 24, 2011)).