اثرات ثروت سهامدار و مذاکره مناقصه در معاملات تعلیق کردن: آیا سهامداران جزء در کسب و کار از کار افتاده به سمت چپ می روند؟

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 indicates 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.

Few subjects in applied corporate finance generate as much practitioner debate as the valuation of minority equity claims in US corporations. The issue is particularly important when a corporation's controlling shareholder bids for the remaining minority equity stake in the firm, deals commonly referred to as minority freeze-outs. Concerns associated with minority shareholder welfare in freeze-out bids have frequently garnered the attention of the business press and legal community because the pricing of minority shares does not emerge from an arm's-length negotiation between independent parties and can reflect a conflict inherent with disparate ownership interests.1 The courts have recognized potential limitations on the objectivity of controlling shareholders and a target firm's directors during freeze-out negotiations. Correspondingly, legal doctrine concerning the fiduciary obligations of controlling shareholders and their directors during freeze-out bids has developed considerably over the last decade. Judicial review of freeze-out transactions has applied a fairness standard that discourages coercive bids while encouraging full information arm's-length negotiation between claimants. Nevertheless, legal protections and economic incentives could be insufficient to fully resolve conflicts of interest between controllers and the agents charged with representing minority shareholders during freeze-out negotiations.2 To summarize the dynamics between the legal and economic environment in freeze-out bids, we propose two alternative theories concerning the outcomes for minority shareholders in these bids. The first is a theory of bid capture. This theory suggests that controllers are able to capture a disproportionate share of the gains in freeze-out transactions by structuring bids that minimize vigorous negotiation with minority claimants who lack sufficient board representation or efficient legal recourse or both. The second is a minority bargaining power theory. Under this theory we posit that, despite potentially incomplete legal protections for minority shareholders, the incentives of participants and economic conditions associated with deal structure insulate minority shareholders from self-dealing by controlling shareholders. To address these hypotheses, we empirically examine bid characteristics and deal outcomes for a sample of freeze-out proposals involving US public corporations between 1988 and 2003. We consider both the indirect evidence pertaining to changes in shareholder wealth during freeze-out bids and direct evidence concerning the prevalence and tenor of explicit bid negotiation during these transactions. Our analysis incorporates two sets of benchmark transactions: bids proffered by bidders holding non-controlling equity toeholds in a target (henceforth referred to as minority toehold bids), and bids involving bidders with no pre-bid equity stake in the target (henceforth referred to as no-toehold bids). While transactions involving the transfer of control provide a revealing benchmark for negotiation, they likely yield systematically different wealth changes and include significant control premiums relative to freeze-out bids, potentially confounding the interpretation of wealth effects across transaction forms. Thus, to account for these differences and provide evidence regarding the bid capture and minority bargaining hypotheses, we examine the distribution of transaction surplus between majority (bidder) and minority (target) claimants benchmarked to their respective pre-bid pro rata ownership of equity in the target firm; which is a measure free of potential distortions arising from systematic differences in value creation between control and freeze-out transactions. Controlling for bid, contract, and target firm characteristics, target announcement period cumulative abnormal returns (CARs) in freeze-outs, while positive, are as much as 10–14% lower than the CARs realized by target shareholders in control transactions. One explanation for the lower target CARs is that bidders in freeze-outs already possess operational control over targets, thereby lowering the incremental gains to freeze-out mergers relative to transactions involving a transfer of control. Consistent with this interpretation we find that the overall wealth gains associated with the announcement of completed freeze-out bids average $55.1 million, compared with $88.4 million in minority toehold bids and $118.9 million in no-toehold bids.

This paper examines the changes in shareholder wealth and explicit bargaining activity observed during acquisition bids proposed by controlling shareholders, deals commonly referred to as minority freeze-outs. Practitioners and legal scholars have been engaged in an ongoing debate regarding the inherent conflicts of interest that arise in these transactions and the impact of these conflicts on outcomes for minority shareholders. Our analysis discriminates between two competing theories regarding these bids. The first is a theory of bid capture under which minority shareholders lack sufficient board representation or efficient legal recourse or both allowing controllers to capture a disproportionate share of the gains to freeze-out acquisitions. Alternatively, we consider a minority bargaining power theory, which posits that active board representation and implicit legal recourse effectively insulate minority shareholders from self-dealing by controllers. All else equal, we find that abnormal returns to controlling shareholders, excluding any gains associated with appreciation in toehold shares, are statistically similar to the returns to bidding shareholders in minority toehold and no-toehold bids. Moreover, we find that, on average, minority claimants in freeze-out bids receive approximately 11% more than their pro rata share of deal surplus generated at the bid announcement, an excess distribution of roughly $6.1 million. These results are inconsistent with the notion that controlling shareholders systematically undertake freeze-out transactions at the expense of the minority claimants of the target firm. In keeping with our findings concerning wealth effects, our evidence is also consistent with a degree of active negotiation on behalf of minority shareholders during freeze-out bids. The incidence of bid hostility in freeze-out transactions is similar to the rate observed in arm's-length transactions, and a hostile deal reception reduces the probability of deal completion by over 40% in freeze-out bids. In addition, freeze-out bids are more likely to be associated with price revisions and, when observed, these revisions are roughly equivalent in magnitude to those that obtain during control transactions. Several broad conclusions can be derived from our results. First, our findings support the contention that, on average, economic incentives and legal protections adequately insulate minority shareholders from expropriation during freeze-out bidding. The disproportionate allocation of deal surplus to minority claimants in freeze-out bids seems inconsistent with the provision of a minimum premium intended to forestall shareholder dissension and appraisal, and suggests that substantial premiums, on average, are necessary to compensate targets, even in bids that do not involve a change in control. In addition, our evidence suggests that bid negotiation by minority shareholders and their agents is common and is used to improve the allocation of deal surplus to minority claimants. The fact that minority shareholders receive more than their pro rata share of the deal surplus is consistent with bidders seeking to avoid any transactions costs associated with the expected direct and indirect expense of a legal challenge. Finally, our analysis does not indicate that minority claimants involved in freeze-out proposals have fared worse following the Siliconix decision in 2001, regardless of bid form. In fact, our evidence suggests that wealth effects and negotiation associated with freeze-out bids are statistically equivalent in pre- and post-Siliconix subperiods. This evidence contrasts with the conventional wisdom that tender offers present an optimal transaction for controlling shareholders seeking to consummate a freeze-out following the Siliconix decision. We infer instead that freeze-out tender offers (like tender offers generally) provide a relatively poor method for extracting deal value from atomistic target shareholders, as they require the distribution of premium to all minority shareholders sufficient to meet the reservation price of the marginal informed shareholder. Given these results, we question the economic basis underlying recent calls for a strengthening of the current review standards applied to freeze-out transactions by the Delaware judiciary.