Delaware boards facing a change of control transaction typically operate under Revlon’s mandate to secure the best price for stockholders. But directors of public benefit corporations (PBCs) are statutorily required to balance the pecuniary interests of stockholders with the best interests of those materially affected by the corporation’s conduct, and the specific public benefit(s) identified in the corporation’s certificate of incorporation. A recent opinion from Vice Chancellor Nathan Cook in Drakes Landing Associates, L.P. v. Tilden Park Capital Management, L.P., addresses, for the first time, how these two frameworks fit together.
MPower Financing, a PBC, faced a looming debt covenant compliance deadline in early 2025. Two existing lenders, Tilden Park Management, L.P. (Tilden Park) and King Street Capital, L.P. (King Street), who already held approximately 25% of MPower’s stock and $109 million of its debt, offered financing that would let them convert their debt to equity at a steep discount, pushing their combined ownership to nearly 85% of MPower’s stock and diluting other stockholders. An independent special committee, with its own outside advisors, ran a limited market search for similar deal opportunities, but ultimately approved the deal with Tilden Park and King Street, despite stockholder objections and calls for a vote. Stockholders sued the special committee for breach of fiduciary duty and the lenders for aiding and abetting.
The court applied Delaware corporate law’s established distinction between the standard of conduct (what directors are expected to do) and the standard of review (whether directors have met the standard of conduct). Under the standard of conduct analysis, the court held Revlon inapplicable to PBC directors, since its application would conflict with DGCL § 365(a)’s requirement to balance stockholder interests, affected stakeholders, and the company’s stated public benefit. Under the standard of review analysis, the court left open the possibility that a modified version of enhanced scrutiny, dubbed “PBC enhanced scrutiny,” may apply to test whether PBC directors’ balancing of the statutory interests was reasonable in the context of a change of control transaction. The court found that it did not need to resolve that open question, however, deciding the case on narrower grounds under DGCL § 365(b).
DGCL § 365(b) protects PBC directors’ balancing decisions so long as they are informed, disinterested, and not wasteful. The plaintiffs conceded the committee was disinterested and independent. The court found that plaintiffs failed to plead facts supporting a reasonable inference that the committee was not informed under either the business judgment rule or enhanced scrutiny; the complaint spoke only to the directors’ alleged failure to do a “more thorough job” in canvasing the market to find a better deal, focusing solely on stockholder pecuniary interests, while ignoring the other two interests identified in DGCL § 365(a). Plaintiffs also did not, and could not, assert waste, since MPower plainly received real value in the form of needed financing.
Both claims were dismissed with prejudice. The court also noted, as a backstop, that § 144(a)(1)’s safe harbor and MPower’s charter exculpation provision would likely have independently protected the committee members even absent PBC status.