second step is invariably at the same price as the first step and the first step was negotiated at
arms-length.27 The final database includes 121 freeze-outs.
For each transaction, I examine SEC filings by the controller and the target company
(primarily 8-K, 14D-9, 13E-3, 13D, and 14A filings), news reports, and company press releases
to collect data on the bargaining process, such as whether a special committee of independent
directors was formed to assess the transaction, the dates and sequence of offers and counter-
offers, and the terms of the final agreement, if one was reached. Stock price data for each target
company is taken from the Center for Research in Securities Pricing (CRSP) database or
DataStream, where available, and otherwise from company SEC filings.
information is taken from Spectrum.
With two exceptions, I classify each freeze-out as either a statutory merger or a tender offer.
One exception is Kontron AG’s freeze-out of Kontron Mobile minority shareholders, which
began as a merger freeze-out and was eventually executed as a tender offer, without target board
shareholders, which began as a tender offer freeze-out and was eventually executed as a merger.
I classify twelve merger freeze-outs that were executed as two-step tender offers as mergers,
because the Delaware Chancery Court has held that these transactions are subject to entire
fairness review.28 Though admittedly a closer call, I also classify two freeze-outs that were
27 See Brudney & Chirelstein (1978) (“Two-step takeovers, being acquisitions by outsiders, are not properly to be viewed as freezeouts in the first place. . .”). There is a gray area in distinguishing an arms-length transaction from a freeze-out if there is delay between the first and second steps of the transaction. See, e.g., Cede & Co. v. Technicolor, 684 A.2d 289 (Del. 1996). As a practical matter, most arms-length acquirers today wish to execute the second-step tender offer as quickly as possible in order to gain 100% of the anticipated economic benefit, to avoid uncertainty in applying dissenters’ appraisal rights, to eliminate potential plaintiffs, to delist from the stock exchange, and to deregister under the 1934 Act. (Subramanian 2003) Perhaps as a result, self-dealing and arms- length transactions were clearly distinguishable in my database, with no transactions in this potential gray area.
28 Hartley v. Peapod, Siliconix transaction.
C.A. No. 19025
40 n.26 (Del. Ch. Feb. negotiated transaction
27, 2002) (“About this whole idea that this is a between a majority stockholder and a special