Sunday, August 8, 2010
Form Over Substance? The Value of Corporate Process and Management Buy-Outs, by Matthew D. Cain,
University of Notre Dame - Department of Finance, and Steven M. Davidoff, University of Connecticut School of Law, was recently posted on SSRN. Here is the abstract:
We examine management buy-out (MBO) transactions announced from 2003-2009 in order to study the wealth effects of MBOs and the role of process. We find that there is “value” in corporate process. MBO offer premiums are positively associated with competitive contracts and the existence of special committees. Among transactions with low initial offer premiums, bid failures are more likely when target shareholders benefit from competitive contracts. Our results allow for a cautious approach and more rigorous application of current Delaware law to provide that courts more vigorously scrutinize MBO transactions. They also inform the proper standard for review of other forms of takeovers with explicit agency/principal conflicts, including freeze-outs.