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).