Going Private: Minority Freezeouts and Stockholder Wealth

Abstract

GJOING private restructures corporate ownership by replacing the entire public stock interest with full equity ownership by an incumbent management group. In many going-private transactions, or minority freezeouts as they are frequently called, current managers have majority control of the public corporation and obtain complete equity ownership of the surviving private corporation. In some cases, managers share subsequent equity ownership with outside private investors who help finance the acquisition of publicly held stock. The reorganization of corporate ownership is effected through a variety of legal vehicles, a common example of which is a cash-out merger of the public firm into a shell corporation created expressly for the transaction and wholly owned by the management group. Managerial conflicts of interest in going-private transactions are widely believed to result in unfair treatment of public stockholders (hence the