UCLA School of Law

For nearly four decades, Revlon v. MacAndrews and Forbes has required the boards of target companies in change-of-control transactions to maximize immediate shareholder value – that is, to expose the firm to a market canvass before closing any transaction and refrain from favoring one bidder over another for reasons unrelated to short-term value. Although Revlon is certainly one of the most famous and controversial decisions in the history of corporate law, it remains unclear whether the case had any effect on shareholder welfare. This paper examines that question. The results show that, in fact, the returns of the target shareholders in Revlon deals increased significantly after Revlon – not only in absolute terms, but also in relation to transactions not subject to the decision. From a policy perspective, this finding suggests that if courts continue to limit the scope of the Revlon doctrine (as they have in recent cases), there might be a point after which that trend will harm the welfare of the target shareholders.