Merger Arbitrage, 2nd Edition

Chapter 11Minority Squeeze-Outs

Some of the worst shareholder abuses can be found when a majority owner of a public company seeks to buy out the minority shareholders. The majority owner controls all of the information flow and has an advantage over the outside shareholders that is similar to that enjoyed by management in a management buyout. In fact, the majority shareholder often controls management because it has majority control of the board.

Due to this control, the target company does not operate as an independent business. The larger the proportion of shares held by the majority stockholder, the more the company resembles a subsidiary of the majority shareholder. In many cases, it actually acts economically as a subsidiary, in that most of its business is done with the majority shareholder or it sells products or services that are extensions of the offerings of the majority shareholder. Therefore, minority squeeze-outs are frequently referred to as parent-subsidiary mergers, in which the subsidiary has publicly traded minority interests. Statutory squeeze-outs have already been discussed in the context of two-step offers. As a reminder, in the first step of a takeover offer the acquirer aims to obtain a sufficient number of shares so that minority shareholders who have not tendered can then be squeezed out through a statutory squeeze out in a second step. As a result the acquirer obtains full control of the target. The threshold that an acquirer needs to obtain in order ...