The Foundations of Freezeout Laws in Takeovers
32 Pages Posted: 4 Nov 2008
Date Written: August 2003
We provide an economic basis for permitting freezeouts of non-tendering shareholdersfollowing successful takeovers. We describe a specific freezeout mechanism based on easily verifiable information that induces desirable efficiency and welfareproperties in models of both corporations with widely dispersed shareholdings andcorporations with large pivotal shareholders. The mechanism dominates previous proposals along some important dimensions. We also examine takeover premia that arise in the presence of competition among raiders. Our mechanism is closely related to the practice of takeover law in the U.S.; thus, our analysis may be thought of as analyzing the economic foundations of current regulations.
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