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
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.