The Efficiency and Welfare Foundations of Freezeout Laws in Takeovers

25 Pages Posted: 26 Aug 2002

See all articles by Yakov Amihud

Yakov Amihud

New York University - Stern School of Business

Marcel Kahan

New York University School of Law; European Corporate Governance Institute

Rangarajan K. Sundaram

New York University (NYU) - Department of Finance

Date Written: March 1, 2002

Abstract

We provide an economic basis for permitting freezeouts of non-tendering shareholders following successful takeovers. We describe a specific freezeout mechanism that is based on easily verifiable information, making it simple to implement in practice. We show that this mechanism induces desirable efficiency and welfare properties in models of both corporations with widely-dispersed shareholdings (as in Grossman and Hart, 1980) and corporations with large pivotal shareholders (as in Bagnoli and Lipman, 1988), and that it strictly dominates previous proposals along some important dimensions. The mechanism we describe is very closely related to the practice of takeover law in the US.

Suggested Citation

Amihud, Yakov and Kahan, Marcel and Sundaram, Rangarajan K., The Efficiency and Welfare Foundations of Freezeout Laws in Takeovers (March 1, 2002). NYU, Ctr for Law and Business Research Paper No. 02-03. Available at SSRN: https://ssrn.com/abstract=305242 or http://dx.doi.org/10.2139/ssrn.305242

Yakov Amihud (Contact Author)

New York University - Stern School of Business ( email )

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Marcel Kahan

New York University School of Law ( email )

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European Corporate Governance Institute ( email )

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Rangarajan K. Sundaram

New York University (NYU) - Department of Finance ( email )

Stern School of Business
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New York, NY 10012-1126
United States
212-998-0308 (Phone)
212-995-4233 (Fax)

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