Here's a scenario. You run a music label. Business is decent, but you're a few weeks from missing a loan payment, and if you miss it, the bank can call the whole loan. Two of your biggest lenders, who already have equity in the label, step in with a rescue offer. Take our cash now, they say, or the label goes under. Only catch, if you don't pay us back by a certain date, the money you owe us converts into more equity in the label. Suddenly the two guys who lent you cash last Tuesday own most of your label, and everyone who had a piece of it before is stuck with basically nothing.
That, with a few more commas and a Delaware judge involved, is basically what happened to MPower Financing, and a court just ruled on whether the people who approved that deal did anything wrong.
Quick intro if you're new here. I'm Carl, by day I run Joseph Black Law PLLC, a New York law practice where I work on startup and venture capital transactions, entertainment and music deals, and investment fund structures. By night, and honestly during a lot of stolen lunch hours, I write The Dime💰.
The Dime💰 exists for one reason: the most interesting financial stories in America run through culture, and almost nobody covers them with both the spreadsheet and the source material open at the same time. The music press covers the artist. The financial press covers the companies. The Dime💰 covers the deals.
Today we talk about how the board of a Public Benefit Corporation finessed their way out of being owned by their lender. We also give you the step by step on how to execute the same exact finesse. Here's this week's Dime💰.
WHAT ACTUALLY HAPPENED
MPower Financing is a company that lends money to international students so they can attend school in the U.S. It's structured as a Public Benefit Corporation, or PBC, which we'll get to. In early 2025, MPower needed to keep at least $17 million in the bank by January 31st or it would breach its loan covenants. It tried to raise equity to cover the gap. That didn't work.
So two of its existing lenders, Tilden Park and King Street, stepped in. Together they already held about $109 million of MPower's debt and owned roughly 25.5% of its stock. On January 30th, one day before the deadline, they sweetened their offer, $20 million in new financing, plus the right to convert all that existing debt into stock at a steep discount. If they exercised it, their combined ownership would jump from 25.5% to nearly 85%. Everyone else's stake would get crushed down to about 15%.
MPower's board formed a special committee of three independent directors to evaluate the deal. That committee hired its own lawyers and its own investment bank, ran a process, and eventually approved the transaction on March 28th. Stockholders who collectively owned more than half the company sent letters demanding a shareholder vote first. No vote happened. The deal closed. Those stockholders sued, claiming the special committee breached its fiduciary duty by not getting them a better deal and not letting them vote on it.
QUICK PBC DETOUR
If you remember, I wrote a piece way back about how I learned how to practice law from the person who basically created Public Benefit Corporations. I also talked about AI companies becoming public benefit corporations as well. Today, Anthropic is a Public Benefit Corporation and so is OpenAI. So let's bring you back down memory lane and tell you what a Public Benefit Corporation is.
A Public Benefit Corporation is a for-profit company that's legally required to balance making money for shareholders with some other stated public benefit, whether that's environmental impact, social good, or in MPower's case, expanding access to education. Patagonia and Kickstarter are probably the most recognizable examples. Delaware's PBC statute says directors have to balance stockholder profit against the interests of people affected by the company's conduct and the company's stated mission, all three, not just one.
This matters here because of a famous line of Delaware cases called Revlon, which says that once a company is being sold or control is changing hands, directors have to focus like a laser on getting stockholders the best price, full stop. So the question in this case was simple to ask and hard to answer, does Revlon apply to a company that's legally required to think about things other than stockholder profit?
THE RULING: MAXIMIZING SHAREHOLDER VALUE IS OPTIONAL
Judge Cook said no, not really. Revlon's demand that directors chase the single highest price is inconsistent with a PBC's legal obligation to balance three different interests at once. You can't tell a PBC board "the only thing that matters is stockholder cash" when the legislature already told them "three things matter." So as a rule directors have to follow, Revlon doesn't bind PBC boards.
Which, yes, I'm going to say it, means maximizing shareholder value is now officially optional for a chunk of corporate America. Great. Somewhere a business school professor just had a stroke.
The court didn't totally let Revlon off the hook though. It said the underlying idea behind Revlon, that big control transactions deserve closer judicial review than the usual hands-off deference, might still apply to PBCs in a modified form. He even gave it a name, "PBC enhanced scrutiny." But he didn't have to decide whether that standard actually applied here, because of what happened next.
WHY THE SPECIAL COMMITTEE WON ANYWAY
Delaware's PBC statute has its own safe harbor. If a PBC director's decision is informed, disinterested, and not so lopsided that literally no reasonable person would approve it, the director is deemed to have satisfied their fiduciary duty automatically. Think of it as a legal force field, get inside it and it almost doesn't matter what standard of review a court would otherwise apply.
The stockholders conceded the special committee members were independent and disinterested. That's most of the battle right there. On the "informed" piece, the stockholders' whole argument was that the committee's investment bank didn't shop the deal hard enough. But the court pointed out that's only one of the three interests a PBC board has to balance, pecuniary interest to stockholders, and the stockholders never even alleged the committee failed to consider the other two, MPower's mission and the interests of people affected by its conduct. On waste, nobody claimed MPower got literally nothing for the deal. It got $20 million it desperately needed. Case dismissed, with prejudice.
One detail that should make every plaintiff's lawyer panic, the stockholders never used Delaware's Section 220 to demand board books and records before filing suit. They sued off pure speculation about what the committee did or didn't consider, and the court had nothing in the actual complaint to hang a claim on. If you're going to challenge a board's process, go get the receipts first.
WHY THIS MATTERS BEYOND MPOWER
This is the first Delaware opinion to squarely address how Revlon interacts with the growing world of Public Benefit Corporations, and that world is only getting bigger. OpenAI converted its own structure into a PBC last year, and I wrote about it back in May 2025. Every company that makes that conversion is signing up for this exact tension down the road, a board that has to balance mission against money, and a stockholder base that mostly still just wants the money part maximized. If the AI companies are PBC's then they can pull this same move, for critical decisions. If you're an equity holder in an AI company this should be concerning. Especially when Anthropic is doing deals with Morgan Stanley and other banks to borrow $15 Billion for a data center. If some of these deals have equity conversion as part of a recourse for default, that means existing shareholders could be diluted. This entire article is an example of how Dario or Sam Altman would get away with diluting shareholders if the AI boom goes bust.
The practical lesson for anyone running or advising a PBC through a dilutive rescue financing, form a genuinely independent committee, hire your own counsel and banker, run some kind of a process, and then write down that you actually weighed the mission and the affected stakeholders, and that you weighed those against the price. That paper trail is the difference between getting the safe harbor and getting dragged through years of litigation over a deal that kept the lights on.
That's it for this week's edition of The Dime💰. Don't be stingy with the 🏀. Pass this to a friend.
See y'all next week.
CJB