Shareholder Wealth Effects and Bid Negotiation in Freeze-Out Deals: Are Minority Shareholders Left Out in the Cold?

Thomas W. Bates
Arizona State University – Department of Finance

Michael L. Lemmon
University of Utah – Department of Finance

James S. Linck
Southern Methodist University

June 29, 2005

Abstract:

This paper examines the shareholder wealth effects of bids by controlling shareholders seeking to acquire the remaining minority equity stake in a firm – deals commonly referred to as minority freeze-outs. Minority claimants in freeze-out offers receive an allocation of deal surplus at the bid announcement that exceeds their pro-rata claim on the firm. An analysis of bid outcomes and renegotiation indicate that minority claimants and their agents exercise significant bargaining power during freeze-out proposals. Overall, our results suggest that legal standards and economic incentives are sufficient to deter self-dealing by controllers during freeze-out bids.

Shareholder Wealth Effects and Bid Negotiation in Freeze-Out Deals- Are Minority Shareholders Left Out in the Cold?

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