Does Revlon Matter? An Empirical and Theoretical Study

65 Pages Posted: 12 Jul 2019 Last revised: 7 Aug 2019

See all articles by Matthew D. Cain

Matthew D. Cain

Berkeley Center for Law and Business

Sean J. Griffith

Fordham University School of Law; European Corporate Governance Institute (ECGI)

Robert J. Jackson, Jr.

Professor of Law

Steven Davidoff Solomon

University of California, Berkeley - School of Law; University of California, Berkeley - Berkeley Center for Law, Business and the Economy; European Corporate Governance Institute

Date Written: July 10, 2019

Abstract

We empirically examine whether and how the doctrine of enhanced judicial scrutiny that emerged from Revlon and its progeny actually affects M&A transactions. Combining hand-coding and machine-learning techniques, we assemble data from the proxy statements of publicly announced mergers over a fifteen year period, 2003-2017, ultimately assembling a dataset of 1,913 unique transactions. Of these, 1,167 transactions are subject to the Revlon standard, and 553 are not. After subjecting this sample to empirical analysis, our results show that Revlon does indeed matter for companies incorporated in Delaware. We find that for Delaware Revlon deals are more intensely negotiated, involve more bidders, and result in higher transaction premiums than non-Revlon deals. However, these results do not hold for target companies incorporated in other jurisdictions that have adopted the Revlon doctrine.

Our results shed light on the implications of the current state of uncertainty surrounding Revlon and provide some direction for courts going forward. We theorize that Revlon is a monitoring standard, the effectiveness of which depends upon the judiciary’s credible commitment to intervene in biased transactions. The precise contours of the doctrine are unimportant provided the judiciary retains a substantive avenue for intervention. Recent Delaware decisions in C&J and Corwin have been criticized for overly restricting Revlon, but we suggest that such concerns are overstated so long as Delaware judges continue to monitor the substance of transactions. Thus, in applying these decisions Delaware judges should focus not on procedural aspects but the substantive component of transactions which Revlon initially sought to regulate.

Keywords: Corporate Law, M&A, enhanced scrutiny, Revlon duties, takeovers, merger litigation, Corwin, Fiduciary Duties, Delaware, empirical, machine learning, negotiation process, deal premium

JEL Classification: K22

Suggested Citation

Cain, Matthew D. and Griffith, Sean J. and Jackson, Jr., Robert J. and Davidoff Solomon, Steven, Does Revlon Matter? An Empirical and Theoretical Study (July 10, 2019). European Corporate Governance Institute - Law Working Paper No. 466/2019. Available at SSRN: https://ssrn.com/abstract=3418499 or http://dx.doi.org/10.2139/ssrn.3418499

Matthew D. Cain

Berkeley Center for Law and Business ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States

Sean J. Griffith (Contact Author)

Fordham University School of Law ( email )

150 West 62nd Street
New York, NY 10023
United States

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Robert J. Jackson, Jr.

Professor of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

Steven Davidoff Solomon

University of California, Berkeley - School of Law ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States

University of California, Berkeley - Berkeley Center for Law, Business and the Economy ( email )

Berkeley, CA 94720-7200

European Corporate Governance Institute ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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