Form Over Substance? The Value of Corporate Process and Management Buy-Outs
Matthew D. Cain
U.S. Securities and Exchange Commission
Steven Davidoff Solomon
University of California, Berkeley - School of Law; University of California, Berkeley - Berkeley Center for Law, Business and the Economy
August 4, 2010
5th Annual Conference on Empirical Legal Studies
We examine management buy-out (MBO) transactions announced from 2003-2009 in order to study the wealth effects of MBOs and the role of process. We find that there is “value” in corporate process. MBO offer premiums are positively associated with competitive contracts and the existence of special committees. Among transactions with low initial offer premiums, bid failures are more likely when target shareholders benefit from competitive contracts. Our results allow for a cautious approach and more rigorous application of current Delaware law to provide that courts more vigorously scrutinize MBO transactions. They also inform the proper standard for review of other forms of takeovers with explicit agency/principal conflicts, including freeze-outs.
Number of Pages in PDF File: 38
Keywords: management buy-outs, MBOs, freeze-outs, takeovers, conflict transactions, special committees, corporate process, Delaware
Date posted: August 5, 2010 ; Last revised: February 15, 2011
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