Adverse Selection and Gains to Controllers in Corporate Freezeouts: Comment
UVA Law Faculty Affiliations
A fundamental problem in corporate law is how to constrain a controlling shareholder from using control to appropriate the full value of the firm. One simple method of appropriation is to “freeze out” the minority shareholders by merging the firm into one wholly owned by the controlling shareholder. Because the controlling shareholder has sufficient votes to approve the merger over the minority’s objections, it can cause the merger to occur at any price it wishes. Various features of corporate law try to assure that this price is “fair” to the minority.