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Revlon Rule


The Revlon rule is the legal principle that a company's board of directors make a reasonable effort to obtain the highest value for a company when a hostile takeover is imminent. The Revlon rule involves a narrower interpretation of a board's fiduciary duty, which typically is limited to protecting a company from external threats; under normal conditions, a director is not required to negotiate with any hostile bidder.


In Paramount Communications, Inc. v. Time Inc. William Allen believed that the dealing between Time and Warner did not constitute selling Time, because the control of the company is still in the broad, liquid and changing market after the dealing. In other words, the control of Time was still dispersed.

Under Revlon doctrince, when evaluating a sale of a company or the transfer of its control, a court will defer to enhanced judicial scrutiny, rather than a business judgement rule, and a board's fiduciary duty will shift from a duty to preserve the corporate entity to a duty to maximize value for the shareholders.
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