Shareholder Wealth Effects and Bid Negotiation in Freeze-Out Deals: Are Minority Shareholders Left Out in the Cold?

44 Pages Posted: 24 Aug 2004 Last revised: 4 Mar 2018

See all articles by Thomas W. Bates

Thomas W. Bates

Arizona State University - Department of Finance

Michael L. Lemmon

University of Utah - Department of Finance

James S. Linck

Southern Methodist University (SMU) - Finance Department

Date Written: June 29, 2005

Abstract

This paper examines the shareholder wealth effects of bids by controlling shareholders seeking to acquire the remaining minority equity stake in a firm - deals commonly referred to as minority freeze-outs. Minority claimants in freeze-out offers receive an allocation of deal surplus at the bid announcement that exceeds their pro-rata claim on the firm. An analysis of bid outcomes and renegotiation indicate that minority claimants and their agents exercise significant bargaining power during freeze-out proposals. Overall, our results suggest that legal standards and economic incentives are sufficient to deter self-dealing by controllers during freeze-out bids.

Keywords: Merger, tender offer, acquisition, minority shareholder, squeeze-out, freeze-out

JEL Classification: G34, K22

Suggested Citation

Bates, Thomas W. and Lemmon, Michael L. and Linck, James S., Shareholder Wealth Effects and Bid Negotiation in Freeze-Out Deals: Are Minority Shareholders Left Out in the Cold? (June 29, 2005). Journal of Financial Economics (JFE), Vol. 81, No. 3, 2006. Available at SSRN: https://ssrn.com/abstract=660422 or http://dx.doi.org/10.2139/ssrn.660422

Thomas W. Bates (Contact Author)

Arizona State University - Department of Finance ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

Michael L. Lemmon

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States
801-585-5210 (Phone)
801-581-7214 (Fax)

James S. Linck

Southern Methodist University (SMU) - Finance Department ( email )

United States

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