The debate on the implications of the Siliconix/Glassman mechanism for freezing out
minority shareholders has been hindered by the absence of any systematic empirical evidence.12
Basic questions remain unanswered: What fraction of freeze-outs are executed as mergers versus
tender offers? If both transactional forms continue after Siliconix, how do controllers decide
which to use? Are outcomes different by transactional form? In the next Part, I formalize my
approach to these questions by developing a theory of freeze-outs that yields specific predictions
and testable hypotheses. In Part 4, I test these hypotheses against a new database of all post-
3. A theory of freeze-outs
In this Part, I develop a theory of freeze-outs that introduces three factors: the special
committee’s bargaining power; the shareholder approval requirement; and lawyer effects. I
discuss each of these in turn.
3.1. Special committee bargaining power
All else equal, the SC may have more bargaining power against a controlling shareholder in a
merger freeze-out than in a tender offer freeze-out for two reasons. The first reason is the SC’s
ability to veto the transaction.13 While a merger freeze-out, for all practical purposes, cannot
12 In a recent working paper, Bates, Lemmon & Linck (2004) present empirical evidence on freeze-outs between 1988 and 2001. However, because of their long time window that ends just after Siliconix was decided, and because they require a freeze-out to be announced and completed within this timeframe in order to be included in their
sample, only 5% of their deals (approximately) post-Siliconix sample from their overall sample
are post-Siliconix freeze-outs.
The authors do not break out
structured as two-step tender offers as “tender offers,” even though this classification reasons described at infra note 28 and accompanying text. Finally, the authors rely on
is doctrinally incorrect for Thomson Financial data to
identify and measure bid increases. data is unreliable for this purpose. interpret, and not comparable to the
My experience from examining company SEC filings is that Thomson Financial See infra note 48. All of these factors make the authors’ findings difficult to results presented here despite the authors’ efforts to do so.
13 See, e.g., WFS Financial Press Release (Sept. 26, 2002) (“WFS Financial announced today that it had received notice from Westcorp that the proposal to acquire the outstanding 16% minority interest of WFS has been withdrawn. . . . In its notice, Westcorp indicated that it had withdrawn that proposal and was terminating further discussions with the independent director special committee of WFS because the two special committees were unable to reach an agreement on a mutually acceptable exchange ratio for the proposed transaction.”).