Form Over Substance? The Value of Corporate Process and Management Buy-Outs

38 Pages Posted: 5 Aug 2010 Last revised: 15 Feb 2011

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

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Date Written: August 4, 2010

Abstract

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.

Keywords: management buy-outs, MBOs, freeze-outs, takeovers, conflict transactions, special committees, corporate process, Delaware

Suggested Citation

Cain, Matthew D. and Davidoff Solomon, Steven, Form Over Substance? The Value of Corporate Process and Management Buy-Outs (August 4, 2010). 5th Annual Conference on Empirical Legal Studies. Available at SSRN: https://ssrn.com/abstract=1653492 or http://dx.doi.org/10.2139/ssrn.1653492

Matthew D. Cain

U.S. Securities and Exchange Commission ( email )

United States Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
United States

Steven Davidoff Solomon (Contact Author)

University of California, Berkeley - School of Law ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States

University of California, Berkeley - Berkeley Center for Law, Business and the Economy ( email )

Berkeley, CA 94720-7200

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