Does Revlon Matter? It Does in Delaware, But Elsewhere Not So Much
Here’s an interesting new study by several prominent scholars – including SEC Commissioner Robert Jackson – that asks the question: does Revlon matter? In order to come up with an answer, the authors analyzed data from over 1,900 transactions that took place over a 15-year period. Their conclusion was that in Delaware, Revlon matters a lot – but in other jurisdictions that have adopted the standard, it doesn’t seem to move the needle. Here’s an excerpt from the abstract:
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.
In other words, the Delaware courts have demonstrated a willingness to intervene in cases of management bias that doesn’t seem to be present among courts in states where the doctrine’s been imported.
The authors note that recent Delaware decisions in C&J Energy and Corwin have been criticized for “overly restricting” Revlon, but their study suggests that those concerns are overblown so long as the transactions are monitored by Delaware judges who prioritize the substantive concerns about managerial bias that gave rise to the doctrine in the first place. They emphasize that this means not allowing the procedural emphasis of decisions like Corwin to overwhelm these substantive concerns:
Corwin, as we have already noted, focuses courts on the procedural prerequisites of a fair and fully informed vote of the disclosures under Corwin should therefore look to information that is probative of management bias, not matters that would be irrelevant to an application of enhanced scrutiny. If the plaintiffs succeed in uncovering previously undisclosed evidence of management bias, the shareholder vote should not count as “fully informed” and the cleansing effect of Corwin should not apply.
-John Jenkins, DealLawyers.com July 16, 2019
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