Abstract
Do freeze-out mergers mitigate the free rider problem of corporate takeovers? We study this question in a tender offer model with finitely many shareholders. Under a freeze-out merger, shareholders expect to receive the original offer price whether or not they tender their shares. We show that the ability to freeze out minority shareholders increases the raider's expected profit, and this profit is higher when the ownership requirement the acquirer has to meet in order to complete a freeze-out merger is lower. Furthermore, the raider's expected profit decreases as the firm becomes more widely held. However, in the limit, for any ownership requirement that is more stringent than simple majority, the raider's expected profit converges to zero. In this sense, freeze-out mergers do not provide a solution to the free rider problem.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.