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

55 Pages Posted: 2 May 2012 Last revised: 1 Oct 2012

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

Multiple version iconThere are 2 versions of this paper

Date Written: 2011

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: Delaware, Journal, Corporate, Law, buy-out, management, freeze-out, contract, shareholders

Suggested Citation

Cain, Matthew D. and Davidoff Solomon, Steven, Form Over Substance? The Value of Corporate Process and Management Buy-Outs (2011). Delaware Journal of Corporate Law (DJCL), Vol. 36, No. 3, 2011; Ohio State Public Law Working Paper No. 176. Available at SSRN: https://ssrn.com/abstract=2050027 or http://dx.doi.org/10.2139/ssrn.2050027

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

Paper statistics

Downloads
223
Rank
12,938
Abstract Views
1,376