United States: Getting A Deal Done In Delaware Without Revlon

In its recent decision of Corwin v. KKR Financial Holdings LLC, the Delaware Supreme Court did two things. It affirmed that a court will not apply an entire fairness review to a merger transaction so long as the board is disinterested and the acquirer does not have "effective control," no matter how closely tied the acquirer is to the operations of the target company. Second, it championed the informed and uncoerced vote of a disinterested majority of shareholders as a cure for many sins of the M&A process, including the failure to follow Revlon.

In 2004, KKR & Co. LP, the well-known publicly traded investment company ("KKR"), formed KKR Financial Corp., a Maryland real estate investment trust ("KKR Financial"), which in 2005 engaged in a public offering. Then, in 2007, KKR Financial restructured so that it became a subsidiary of KKR Financial Holdings LLC, a publicly traded Delaware limited partnership ("KFN"). The subsequent going-private transaction in 2013-2014, in which KFN was acquired by KKR, is the subject of the case.

Everything about KFN, except its ownership and the majority of its board, was tied to KKR. KFN's primary asset was a portfolio of subordinated notes in collateralized loan transactions that financed KKR's leveraged buyout activities. KFN delegated management responsibility for its operations to KKR Financial Advisors LLC ("KFA"). By its own statement, KFN was wholly dependent on KFA. Thus, KFN had no facilities or employees, and KFA was responsible for KFN's investments, financing, risk management and valuation of its assets. KFN's management agreement with KFA could be terminated only under certain circumstances and the payment of a substantial termination fee. As alleged by plaintiffs, the amount of the termination fee as of the end of 2012 exceeded the amount of cash and cash equivalents on the balance sheet of KFN at the time. On the other hand, KKR owned only a de minimis amount of the equity of KFN, and only two of the 12 directors on the board of KFN were clearly affiliated with KKR.

In late 2013, KKR expressed interest in acquiring KFN in a stock-for-stock merger. In the negotiations that ensued, the KFN transactions committee of independent directors succeeded only in extracting a minimal improvement in KKR's offer, from 0.50 to 0.51 KKR shares per KFN share. The exchange ratio reflected a 35% premium over the trading value of KFN shares on the date the merger agreement was executed in December 2013. Plaintiffs observed, however, that at the time the KFN shares were trading near their one-year low, while KKR shares were trading near their one-year high. The merger was approved by a vote of the KFN shareholders, and the merger was consummated in April 2014.

Plaintiffs claimed that the merger transaction should have been reviewed by the court under the standard of entire fairness rather than the far more lenient standard of the business judgment rule. The entire fairness standard is reserved for transactions with controlling shareholders, essentially because the controlling shareholder is positioned on both sides of the transaction. With KKR's tentacles wrapped around KFN in numerous directions, plaintiffs urged that KKR was indeed a controller of KFN. The Delaware Supreme Court, agreeing with the court below, gave this argument short shrift. While KKR controlled the operations of KFN, it owned virtually no stock, and the board was largely independent of KKR. KFN's almost total operational dependency on KKR was of no consequence. KKR did not have what was termed "effective control" over KFN, that is, "a combination of potent voting power and management control." The court's decision is consistent with its holding in Kahn v. M&F Worldwide Corp. The court held in that case that given an independent committee of directors and a majority vote of disinterested shareholders, the business judgment rule will apply even in transactions with an undeniable controlling shareholder.

Plaintiffs next argued for relief on the basis that the KFN board failed to conduct a sale process that complied with its duties under the famed case of Revlon v. MacAndrews & Forbes Holdings, Inc. In Revlon, the Delaware Supreme Court held that in a sale of a company, the directors must exercise their fiduciary duties so as to achieve the highest price reasonably available. Plaintiffs were arguing, it seems, that the KFN board conducted neither an auction nor a market check, nor took any other action that would satisfy Revlon.

Ignoring whether the plaintiffs properly pleaded a Revlon claim, the Delaware Supreme Court said that it did not matter. First, Revlon was designed primarily for injunctive relief to be applied before closing of a transaction; the plaintiffs here were seeking post-closing relief. Second, and more important, when a merger transaction is approved by a fully informed, uncoerced vote of disinterested shareholders, the default business judgment rule applies even if there are process defects. These defects could include a failure to follow Revlon or the existence of interests of directors in the transaction that might have tainted the board's decision-making process. So long as there was full and fair disclosure to shareholders and an uncoerced vote, the defects will be overlooked. The opinion implies, but does not expressly state, that the principles of the case could apply even to a challenge brought prior to the vote. There is a caveat, however. The opinion does not apply to a transaction that is subject to an entire fairness review.

Corwin v. KKR provides clear recognition that having a substantial operational interest in a company does not necessarily equate to control, with its higher standards for M&A transaction process and procedure. Second, Revlon is not the be-all and end-all condition for immunizing a change-of-control transaction in Delaware. A board may be able to dispense with Revlon provided that it is fully candid with its shareholders about the proposed transaction and does not coerce the vote. Moreover, even conflicts of interest in the boardroom are not fatal, so long as they are carefully explained to shareholders, as implied by Section 144(a)(2) of the Delaware General Corporations Law. This is not to suggest that companies should lightly dispense with a more traditional approach of following Revlon and quarantining conflicts, but it is good to know that there may be a fallback when the exigencies of a transaction do not allow for best practice.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.