Files
Abstract
We empirically examine whether and how the doctrine ofenhanced judicial scrutiny that emerged from Revlon and its progenyactually affects M&A transactions. Combining hand-coding andmachine-learning techniques, we assemble data from the proxystatements of publicly announced mergers between 2003 and 2017 intoa dataset of 1,913 unique transactions. Of these, 1,167 transactionswere subject to the Revlon standard, and 553 were not. Aftersubjecting this sample to empirical analysis, our results show thatRevlon does indeed matter for companies incorporated in Delaware.We find that in Delaware, Revlon deals are more intensely negotiated,involve more bidders, and result in higher transaction premiums thannon-Revlon deals. However, these results do not hold for targetcompanies incorporated in other jurisdictions that have adopted theRevlon doctrine.
Our results shed light on the implications of the current state ofuncertainty surrounding Revlon and provide some direction for courtsgoing forward. We theorize that Revlon is a monitoring standardwhose effectiveness depends upon the judiciary’s credible commitmentto intervene in biased transactions. The precise contours of thedoctrine are unimportant as long as the judiciary retains a substantiveavenue for intervention. Recent Delaware decisions in C&J andCorwin have been criticized for overly restricting Revlon, but wesuggest that such concerns are overstated so long as Delaware judgescontinue to monitor the substance of transactions. Thus, in applyingthese decisions, Delaware judges should focus not on proceduralaspects but the substantive component of transactions, which Revloninitially sought to regulate.