Definition - What does Revlon Rule mean?
The Revlon Rule resulted from a legal case decided by the Supreme Court of Delaware in 1985. Revlon, Inc. found itself in a hostile takeover, which management and the board fought hard to defend. Ultimately, a white knight provided a friendly, but lower, bid that the board accepted. The bid approval was overturned by the Supreme Court of Delaware, which claimed that in the case of a company sale, the board must look after the shareholders first and accept the highest, and cleanest, bid in order to maximize shareholder value.
Divestopedia explains Revlon Rule
The Revlon Rule clarified that the fiduciary duty for boards is to the shareholders, rather than the corporation itself. This is particularly relevant when the company is assessing strategic sale alternatives or receives an unsolicited offer — friendly or hostile. In this case, the Revlon Rule requires the board to put aside the impact on management, employees, suppliers, banks and other stakeholders, and focus solely on maximizing shareholder value by selecting the highest purchase price with the cleanest structure (preferably all cash).