with New York City and Delaware lawyers indicate that this finding is consistent with
practitioner experience. For example, reacting to an earlier version of this paper presented at a
panel discussion on freeze-outs held at the Harvard Law School, Jim Morphy, head of the M&A
practice at Sullivan & Cromwell, stated:
In a tender offer the controlling stockholder, in effect, says to the other stockholders, “Here is my offer: the stock was trading at $6.25, I’m willing to pay you $8.00. That’s your choice – you can have $8.00 or you can have
$6.25.” Because it is difficult collectively, the tendency if you
for stockholders, as a are a stockholder is
group, to take
to bargain the $8.00.
Someone might essentially what
have a mathematical analysis of how this all works takes place in the absence of an effective bargaining
but that is agent like
a special committee. In and legal standards, the controlling stockholder. Armed with information something better.
the merger scenario, given the difference in statutory special committee is not as easily by-passed by the Therefore its choice is not between $6.25 and $8.00. and sufficient authority, it can go out and negotiate for
Charles Nathan, Global Co-Chair of the M&A department at Latham & Watkins in New
York City, similarly states:
You can debate whether you do better economically in Siliconix. I happen to think you do. Because I think what you’re doing in Siliconix is negotiating with the market, you’re not negotiating with the special committee, in the sense that as long as your price will clear enough of the market to get to 90%, you win. And the market is not as effective a negotiator as a special committee – it doesn’t have the same discipline. . . . If you were to ask me, from a practical point of view, is there a difference in the leverage, the answer is vast. If this is a traditional negotiated transaction, the special committee has a lot more leverage. 49
addition to this coding problem, this different finding is likely explained by a systematic bias in the quality of Thomson Financial data, which the Bates et al. study relies on. Thomson Financial is far more likely to capture bid increases in tender offers than in mergers because bids (and therefore bid increases) are necessarily public in tender offers and not necessarily so in mergers. In my sample of post-Siliconix freeze-outs, in which I detect bid increases using SEC filings, I find that Thomson Financial missed 56% of bid increases in successful merger freeze-outs, compared to 13% of bid increases in successful tender offer freeze-outs. This systematic bias between tender offers and mergers in the Thomson Financial data set is likely to explain the difference between the findings reported here and Bates et al.
49 Telephone Interview with Charles Nathan, Latham & Watkins (Feb. 20, 2004). See also Marcus, supra note 45, at 10 (“Most deal lawyers believe buyers pay less if they use the [tender offer] method, an instinct confirmed by the research of Guhan Subramanian.”).