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Second, a merger freeze-out with a non-waivable MOM condition requires 51% of the

minority shareholders outstanding to approve the transaction, regardless of the controller’s pre-

deal stake.19 For example, if the controller holds 40% initially, 51% of the minority, or 31% of

the total outstanding shares, must support the freeze-out. If the controller holds 80% initially,

again 51% of the minority, which this time amounts to 11% of the total outstanding shares, must

support the transaction.

Finally, the level of minority shareholder support required in a tender offer freeze-out is

inversely correlated with the controller’s pre-deal stake, because the controller must get to 90%

voting control in order to then execute a short-form merger. For example, if the controller holds

40%, it needs another 50% of shares outstanding, or 83% of the minority shares outstanding

(50% out of the 60% of total shares held by the minority) in order to achieve the 90% voting

control that allows it to execute a short-form merger. If instead the controller already holds 85%,

then it only needs another 5% of shares outstanding, or 33% of the minority shares (5% out of

the total 15% held by the minority) to get to 90%.20 In general, the controlling shareholder in a

Storage USA shares in favor of the purchase agreement and the Transactions. Accordingly, the affirmative vote of holders of an additional 1,815,973 shares, which equals approximately an additional 6.4% of our outstanding shares of common stock, will be sufficient to approve the purchase agreement and the Transactions.”).

19 One MOM condition in the sample required only a majority of the shares voted. See Oriole Homes Corp. 8-K (filed Sept. 11, 2002) (“The combined voting power of the Levy Group and the Loeb Group is sufficient to satisfy the statutory approval requirement. In addition to the statutory approval requirement, the Merger Agreement provides that it is a non-waivable condition to our obligation to consummate the Merger that the Merger Agreement and the Merger are approved by a majority of the shares of Class A Common Stock and Class B Common Stock not beneficially owned by the Levy Group, voting together as a single class, that are cast in favor of or against approval of the Merger Agreement and the Merger at the Annual Meeting.”). For simplicity I assume 100% minority shareholder turnout in this transaction, which makes this condition the same as a standard MOM condition. The results in Part 4 do not change if I exclude this transaction from my analysis.

20 Of course, a MOM condition would set a 50% floor on the minority approval needed in a tender offer freeze-out. See, e.g., TD Waterhouse Group 14D-9 (Oct. 11, 2001) (“The Special Committee noted that because of the Majority of the Minority Condition, the Revised Offer cannot succeed unless a majority of the publicly-owned Shares are tendered. Absent that condition, due to TD Bank’s ownership of 88% of the Shares, the Purchaser and TD Bank would be able to attain ownership of 90% of the Shares even if only 16.6% of the Shares they do not already own were tendered in response to the Offer or the Revised Offer.”).


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