Mandatory Bids, Squeeze-Out, Sell-Out and the Dynamics of the Tender Offer Process

35 Pages Posted: 14 Jul 2003

See all articles by Mike Burkart

Mike Burkart

Swedish House of Finance; London School of Economics and Political Science, Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Fausto Panunzi

Bocconi University - Department of Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Date Written: June 2003

Abstract

The European Commission's draft directive (October 2002) proposes to introduce a squeeze-out right and a sell-out right and to set the price in a mandatory bid equal to the highest price paid in the 6 or 12 preceding months. Drawing on the existing literature, this paper analyses these three new provisions. In takeovers of widely held targets, the squeeze-out right and the sell-out right have the potential to resolve the collective action problem among shareholders, thereby ensuring the success of value-increasing takeovers and the failure of value-decreasing takeovers. Unlike the sell-out right, the mandatory bid rule requires competition by the incumbent to provide additional shareholder protection. In firms with a dominant shareholder, the mandatory bid rule eliminates inefficient control transfers at the cost of discouraging more efficient control transfers. The benefits but not the costs of the mandatory bid rule tend to disappear when control is consolidated via dual class shares or pyramids or when control benefits are determined by either environment or firm characteristics (but not by the blockholder's identity).

Keywords: takeover regulation, mandatory bid, squeeze-out, sell-out, minority shareholder protection

JEL Classification: G34, G38, K22

Suggested Citation

Burkart, Mike C. and Panunzi, Fausto, Mandatory Bids, Squeeze-Out, Sell-Out and the Dynamics of the Tender Offer Process (June 2003). ECGI - Law Working Paper No. 10/2003. Available at SSRN: https://ssrn.com/abstract=420940 or http://dx.doi.org/10.2139/ssrn.420940

Mike C. Burkart (Contact Author)

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

London School of Economics and Political Science, Department of Finance ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

HOME PAGE: http://www.cepr.org/default_static.htm

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Fausto Panunzi

Bocconi University - Department of Economics ( email )

Via Roentgen 1
20136 Milan
Italy
+39 02 5836 5327 (Phone)
+39 02 5836 5343 (Fax)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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