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tender offer freeze-out must obtain (90-k) percent of the total shares outstanding, or (90-k)/(100-

k) percent of the minority shares outstanding, where k is the controller’s pre-deal stake.

If minority shareholders’ reservation prices for their shares are normally distributed, then the

supply curve for minority shares is upward sloping (Clark 1985:505-06; Booth 2001). The

controller cannot price discriminate against this supply curve because all shareholders of the

same class must receive the same price in a merger, and SEC Rule 14d-10 requires the controller

to pay the same price to all shareholders who sell into a single tender offer.21 This analysis

yields the following hypothesis:

H2: The price paid to minority shareholders increases as the required level of

minority support increases.

In addition, the analysis in this Part suggests that transactional form may in part be a function

of the controller’s pre-deal stake. Specifically, the approval required from minority shareholders

in a tender offer freeze-out suggests the following hypothesis:

H3: The likelihood of using a tender offer increases with the controller’s pre-deal


Hypothesis H3 highlights the importance of jointly testing Hypotheses H1 and H2. For

example, if all large controllers proceeded via tender offer and all small controllers proceeded

via merger (i.e., an extreme form of H3), then we might observe controllers paying less in tender

offer freeze-outs not because of the SC’s lesser bargaining power (H1), but rather because of the

lower shareholder approval required in a tender offer relative to a merger freeze-out with a

21 This rule cannot be evaded through procedural maneuvering. See, e.g., Field v. Trump, 850 F.2d 938 (2nd 1988) (holding that successive tender offers should be considered together for purposes of Rule 14d-10).



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