- corporate law •
- M&A •
- enhanced scrutiny •
- Revlon duties •
- takeovers •
- merger litigation •
- Corwin •
- fiduciary duties •
- Delaware •
- empirical •
- Machine Learning •
- negotiation process •
- deal premium
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
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.