Risk Arbitrage

Chapter 6

Corporate “Freezeins”:The SubterfugeSyndrome

Introduction

Martin Lipton and Erica Steinberger have defined a “freezeout” or “going private” as a corporate transaction in which “. . . a shareholder or group of shareholders receive cash, debt, or preferred stock in exchange for their shares.”¹ “Freezeouts” are thus, by definition, coercive maneuvers. This writer utilizes the term “freezein” to refer to a phenomenon that is directly opposite to the aforementioned; it is a corporate quasi-transaction to preclude shareholders from acting on a bona fide offer that they receive from a would-be acquirer and are thereby, if not literally “frozen in” to their equity positions in perpetuity, then at least are forced to forego a handsome premium for their shares. In any case, managements are surely “frozen in” to their various emoluments.

Whereas in “freezeouts” shareholders seem to have some remedy at law in attaining fair value for their shares, it would appear that in the case of “freezeins” no such remedy is currently available. The writer feels that this highly inequitable situation merits close attention by regulatory authorities. There have, in the course of the past few years, been some well-publicized cases of the phenomenon involving managements refusing to pass legitimate offers on to their shareholders, thereby devastating the values of shares owned by common stock investors.

The actual “freezein” is accomplished through what is obviously a subterfuge that Webster ...