Freeze-out mergers: the case of shareholders with multiple shares

Takeovers, Freezeouts, and Risk Arbitrage

“…However, since the payoffs of all shareholders are strictly higher when the offer is successful, it is a weakly dominant strategy for all shareholders to tender all their shares because their payoffs are higher whenever they are pivotal. 22 A static model with take-it-or-leave-it offers seems unable to capture the outcome of tender offers because usually the target receives a significant takeover premium. The shortcoming of the static model is that even though bidders may be able to commit to the acceptance condition, but they are not able to credibly commit to take-it-or-leave-it offers.…”

“…This is in accordance with Rule 14d-10 in the U.S. and Rule 22 in the U.K. 21 See Section 4.1 for a discussion of rules in the U.S. and the U.K. that allow a bidder to commit to the minimum tender condition. 22 Interestingly, Lee and Oh (2022) [22] analyze freeze-out mergers in cases where shareholders have multiple shares and show that a raider's increased ability to freeze out non-tendering shares lowers shareholders' incentives to free ride. 23 The existence of unsuccessful takeovers can be reconciled with a model in which there is some exogenous variable that influences the success of the offer.…”