The Drivers of Market Efficiency in Revlon Transactions
Harvard Business School
March 18, 2003
Journal of Corporation Law, Forthcoming
Drawing from practitioner interviews and Gilson & Kraakman's "mechanisms" of market efficiency, I present the argument that the Delaware Supreme Court's decision in Revlon v. MacAndrews & Forbes, Inc. would reduce incentives to search and therefore would reduce overall efficiency in the market for corporate control. I compare this theoretical prediction to the evidence from the past seventeen years of takeover activity, and find no evidence that deal activity for Revlon transactions has been reduced. I argue that three drivers of market efficiency might explain this finding: small net first-bidder costs, preemptive bidding, and heterogeneous buyers. I present some evidence that the market for corporate control was primarily a private-value game in the 1990s, implying that buyer heterogeneity was an important driver of market efficiency. This paper is part of a Symposium commenting on Gilson & Kraakman, The Mechanisms of Market Efficiency, 70 Va. L. Rev. 549 (1984).
Number of Pages in PDF File: 27
Keywords: Takeovers, lockups, mergers and acquisitions, Revlon, market efficiency
JEL Classification: G30, G34, G38, K22
Date posted: March 21, 2003
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