Opportunities in the M&A Aftermarket: Squeezing Out and Selling Out

Abstract

The first part of this paper gives an overview of the economic rationale of the squeeze-out right and the sell-out right. The squeeze-out right influences the dynamics of a tender offer, encourages the minority shareholders to tender and provides the bidder a tool to drive the free riding minority shareholders out of the company. The sell-out right offers the minority shareholders an instrument to consider the pre-take over value, the bid price and the post-take over value and accordingly to take the decision to use his right. The economic analysis illustrates that the triggering thresholds for a squeeze-out right and a sell-out right should be flexible enough in light of the different ownership structures of companies.

In a second part of this paper the legal framework of the squeeze-out right and the sell-out right is examined. First, it is shown that an economically efficient flexible framework can be in conflict with the constitutional protection of private property. Next, the mandatory rules for the squeeze-out and sell-out rights in the European Takeover Directive and in five European Member States - Germany, United Kingdom, France, Belgium and the Netherlands - are examined. The analysis shows that the straightforward economic analysis can not easily be transposed in a comprehensive regulatory framework. Part of it is due to the incomplete economic theory of the squeeze-out right and sell-out right. This is the case for the assessment of the price as the parties involved have conflicting interests. Courts, parties, independent experts, supervisory authorities all play a role in a different degree in the different countries. Next, there are national policy considerations. Third, some rules suggest that the economic theory is ignored. Finally, the European Takeover Directive is considered as another layer of legislation on top of the national rules. The harmonization efforts of the European Union are, if any, not successful. It can be expected that corporate mobility will compel legislators to offer an effective and efficient squeeze-out and sell-out system.

Keywords: Takeover Directive, Squeeze-out, Sell-out, Fair price, Free rider problem, Economic efficiency, European Convention on Human Rights, Belgium, France, The Netherlands, Germany, The United Kingdom

JEL Classification: G34, G38, K22