The substantive cosmetics of corporate takeovers

Let me start with the disclosure. I originally found this boardmember.com post because it mentions 3M's acquisition of Cogent Systems. Both 3M and 3M Cogent are competitors to my employer. Now you know.

The bulk of the boardmember.com post, however, discussed other examples of corporate takeovers, and specifically addressed the question - if you are a member of the Board of Directors for a company that may be acquired, what are your fiduciary duties? Craigh Leonard states some legal guidelines:

When a sale of a company becomes inevitable, the duties of the board change from managing and preserving the corporate enterprise to maximizing the company’s value at a sale for the stockholders’ benefit. And once directors decide to sell their company, they must seek the highest value deal that can be secured for the stockholders regardless of whether the deal is in the best interests of other corporate constituencies such as the corporation’s employees, creditors and suppliers. These duties of a board in a sale of control context are often referred to as “Revlon duties” after the 1986 court case dealing with the takeover of the Revlon cosmetics company.

The post provides an example of what NOT to do:

As part of their duty of care, directors must take an active and direct role in a sale process. The board of the Macmillan publishing house, for example, was found to have breached its oversight duty by allowing Macmillan’s investment bankers to report directly to Macmillan’s CEO despite the fact that the CEO was known to be a participant in one of the two groups bidding to acquire the company. This allowed the CEO’s bidding group to learn what the rival group had bid and to submit a topping bid that may not have been as high as they were willing to go.

More here.