Freeze-out merger

A freeze-out merger is a technique by which one or more shareholders who collectively hold a majority of shares in a corporation gain ownership of remaining shares in that corporation.

The majority shareholders incorporate a second corporation, which initiates a merger with the original corporation. The shareholders using this technique are then in a position to dictate the plan of merger. They force the minority stockholders in the original corporation to accept a cash payment for their shares, effectively "freezing them out" of the resulting company.

Criticism

The legal community has criticised the present rules with regard to freeze-out mergers as being biased against the interests of the minority shareholders. For example, if a gain in stock value is anticipated by the majority, they can deprive the frozen-out minority of its share of those gains. [ [http://www.sgrlaw.com/resources/trust_the_leaders/leaders_issues/807/912 The Big Chill ] ] [ [http://www.lerner.udel.edu/finance/PDF/MFOv8.1.pdf Microsoft Word - MFOv8.1.doc ] ]

References