Post-Siliconix Freeze-Outs: Theory, Evidence & Policy

51 Pages Posted: 27 Apr 2005

Date Written: April 2004


At approximately the same time that the Sarbanes-Oxley Act increased the costs associated with being a public company, important Delaware case law created a difference in the standard of judicial review for the two basic methods of freezing out minority shareholders. While a freeze-out executed as a statutory merger is subject to stringent entire fairness review, the Delaware Chancery Court held in In re Siliconix Shareholders' Litigation that a freeze-out executed as a tender offer is not. This paper presents the first systematic empirical evidence on post-Siliconix freeze-outs. Using a new database of all freeze-outs executed during the current doctrinal regime, I find that a controlling shareholder pays less to the minority shareholders, on average, when it uses a tender offer compared to a merger. This difference between tender offers and mergers seems to increase with the size of the controller's pre-deal stake. These findings introduce a puzzle as to why more than two-thirds of post-Siliconix freeze-outs still proceed through the traditional merger route. I present some evidence that controllers are more likely to choose a merger when they hold a relatively small controlling stake, in order to avoid supermajority approval from the minority that would be required in a tender offer. I also present some evidence that a freeze-out is more likely to be executed as a tender offer when the controller's outside counsel has substantial M&A experience. These findings bolster arguments for convergence in judicial standards of review between tender offer and merger freeze-outs, and provide guidance on how such convergence might best be achieved.

Keywords: Freeze-outs, going private, Siliconix, parent-subsidiary mergers

JEL Classification: G30, G34, K22

Suggested Citation

Subramanian, Guhan, Post-Siliconix Freeze-Outs: Theory, Evidence & Policy (April 2004). Available at SSRN: or

Guhan Subramanian (Contact Author)

Harvard Business School ( email )

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Morgan 270C
Boston, MA 02163
United States
617-495-9784 (Phone)
617-496-7379 (Fax)

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