Revlon Doesn't Live Here: Chancery's Public Benefit Corporation Ruling Rewrites Change-of-Control Doctrine

The Holding

Forty years of Delaware deal doctrine runs through a single sentence: when a corporation is sold for cash, the board's duty narrows to one thing — getting the best price reasonably available. See Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986). On July 29, Judge Nathan Cook of the Delaware Court of Chancery held that sentence does not bind public benefit corporations. According to Reuters' report on the ruling, PBC directors facing a change of control must balance value against the other interests the statute commands them to weigh — they are not conscripted into the traditional price-maximization rule that governs ordinary corporations in Revlon mode.

This is the first clear judicial answer to a question that has hovered over Subchapter XV of the DGCL since its enactment in 2013, and it is a genuinely significant one. It means Delaware now operates a two-tier change-of-control regime, and which tier you occupy depends on a checkbox in your certificate of incorporation.

Why the Statute Compelled This Result

The ruling should not surprise anyone who has read 8 Del. C. § 362(b). That provision requires PBC directors to manage the corporation "in a manner that balances the pecuniary interests of the stockholders, the best interests of those materially affected by the corporation's conduct, and the specific public benefit or public benefits identified in its certificate of incorporation." The 2020 amendments to Subchapter XV hardened that command — "balances" became mandatory, the vote required to convert to PBC status dropped from 90% to two-thirds under § 363, and appraisal rights on conversion were eliminated.

Chancellor Chandler's opinion in eBay Domestic Holdings, Inc. v. Newmark, 16 A.3d 1 (Del. Ch. 2010), established the mirror-image rule for conventional corporations: directors of a for-profit corporation may not defend a business strategy untethered to stockholder wealth maximization. eBay was always the elephant in the room for benefit corporations. Judge Cook's ruling completes the statutory architecture — § 362 creates a real doctrinal carve-out, not just marketing copy, and Revlon's enhanced-scrutiny framework, see Paramount Commc'ns Inc. v. QVC Network Inc., 637 A.2d 34 (Del. 1994), yields to the balancing mandate when the target is a PBC.

The Practical Consequences

For M&A counsel, the deal playbook changes in concrete ways. A board of a PBC target now has explicit judicial cover to accept a lower bid that better serves the stated public benefit — or to reject the highest bidder outright. Buyers must diligence PBC status at the term-sheet stage and understand that the usual leverage points (threatening a Revlon claim, running a topping bid to trigger enhanced scrutiny) lose their bite. Fiduciary-out clauses in merger agreements with PBC targets need redrafting: the "intervening event" and "superior proposal" architecture assumes a value-maximization baseline that § 362 displaces. Expect to see fiduciary outs keyed to the statutory balancing test instead.

For plaintiffs' lawyers, the damages theory just got harder. The bread-and-butter post-closing Revlon claim — board failed to shop, board accepted the first offer, board left money on the table — does not translate to a PBC defendant that can point to mission-consistent reasons for its process. The enforcement mechanism that remains is § 365, which channels suits to compel the statutory balancing into derivative form and imposes a standing threshold: at least 2% of outstanding shares, or for listed companies the lesser of 2% or $2 million in market value. That is a real gate. It concentrates enforcement power in institutional holders and largely forecloses the retail-plaintiff model that drives conventional deal litigation.

The Skeptical View

Here is the uncomfortable question the ruling invites: has Delaware just handed boards a new form of takeover armor dressed in stakeholder language? A conventional board that rejects a premium cash offer faces Unocal/Revlon scrutiny and a real risk of liability. A PBC board can now say, with judicial blessing, that the offer undervalued the mission. The difference between principled balancing and entrenchment will be nearly impossible to police ex ante, and § 365's standing requirements mean it may barely be policed ex post either.

The risk is not that PBCs will balance badly. The risk is that "balance" becomes unfalsifiable — a rationale available for any outcome the board preferred for reasons it need not disclose.

The ruling also lands at a telling moment. Delaware has spent the past two legislative cycles recalibrating the balance between boards and stockholders — most visibly with SB 21's safe harbors for conflicted-controller transactions. The PBC decision cuts in a different direction: rather than shielding directors from challenge, it relocates the challenge into a doctrinal framework where stockholder value is one input among several. Practitioners should read the two developments together. Delaware is not simply retrenching; it is sorting corporate law into distinct doctrinal boxes — controller deals here, benefit corporations there, everything else under the traditional regime — and the box you are in increasingly determines the litigation you will face.

What to Watch

Three follow-ons matter. First, whether the Delaware Supreme Court takes this up on appeal — the fit between § 362 and Revlon is exactly the kind of first-impression question the high court likes to own. Second, whether PBC conversions accelerate now that the takeover-defense value of the form is judicially confirmed; the 2020 amendment lowering the conversion vote to two-thirds makes that path easy for any company with a friendly cap table. Third, whether § 365 derivative suits actually get filed — if the 2% threshold proves to be a paper gate rather than a real one, the balancing mandate will develop content through litigation; if not, it will develop content through board minutes, which is to say not at all.

Bottom line: any lawyer advising a mission-driven company, a buyer of one, or an activist circling one needs to re-underwrite the assumption that cash is king in a sale. For PBCs, Delaware has now said it plainly: the mission sits at the table, and sometimes it outbids the money.