The Drivers of Market Efficiency in Revlon Transactions

Journal of Corporation Law, Forthcoming

26 Pages Posted: 11 Nov 2003  

Guhan Subramanian

Harvard Business School

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Abstract

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).

Keywords: Takeovers, lockups, mergers and acquisitions, Revlon, market efficiency

JEL Classification: G30, G34, G38, K22

Suggested Citation

Subramanian, Guhan, The Drivers of Market Efficiency in Revlon Transactions. Journal of Corporation Law, Forthcoming. Available at SSRN: https://ssrn.com/abstract=389701

Guhan Subramanian (Contact Author)

Harvard Business School ( email )

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