!Корпоративное право 2023-2024 / Bargeron L._Do Shareholder Tender Agreements Inform or Expropriate Shareholders

after the exercise of the Company Securities Option, Parent or its affiliates are obligated to pay the Signatory Holders the excess, if any, of the sale price over the Offer Price for each Share so sold.

The Stockholders Agreement will terminate by the mutual written consent of the parties or upon the earliest to occur of (i) the Effective Time, (ii) the exercise or expiration of the Company Securities Option, (iii) the termination of the Merger Agreement (except for terminations by the Company if it concurrently enters into an agreement providing for a Superior Proposal or by Parent if the Board shall have withdrawn, modified or failed to reconfirm its recommendation of the Transactions), (iv) the amendment of the Merger Agreement without the consent of the Signatory Holders that (a) reduces the Offer Price, (b) changes the form of the Offer Price to other than cash, or

(c) otherwise materially and adversely affects the Signatory Holders, and (iv) December 1, 2001.

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Appendix B: A simple example

The following simple example illustrates the intuition behind the certification hypothesis. Envisage a takeover with three possible synergy values, $5, $10, and $15 per share. To the uninformed shareholders these three states are equally likely. The bidder, however, is informed of the true synergy value. Furthermore, a successful bidder can dilute the value of the non-tendering shareholders by $2 per share.27 To credibly inform a shareholder of the true synergy value and negotiate an STA, the bidder and the shareholder must each incur a cost of $200,000.28 In any STA negotiations between the bidder and an informed shareholder, assume the shareholder has 90% of the bargaining power.29 In addition, assume the target firm has 1,000,000 outstanding shares that are diffusely held except for one large shareholder who owns 10% of the shares.

Consider the decisions of the shareholders and the bidder. A non-pivotal shareholder will not tender his shares if the bid is less than his expected value of a share after dilution.30 The bidder will only bid if his expected profit from bidding is positive.

In the absence of an STA, because of shareholder free riding, any bid below $13 per share will not succeed. Upon seeing a bid above $10 the uninformed shareholders know the bidder must have a synergy value of $15, otherwise a successful bid would lead to negative bidder profits. As a result, they will not tender to any bid less than $13, the post-dilution value of the shares.

27For simplicity, assume the cost of bidding is zero and 50% of the shares are required for control.

28The model assumes the bidder cannot make side payments to the shareholder. The expropriation hypothesis tests this assumption.

29The formidable takeover defenses available to target firms as well as the lopsided division of gains between bidder and target shareholders suggest that target firms hold most of the bargaining power in takeovers.

30The model considers only pure strategy, symmetric perfect Bayesian equilibria. Therefore, the large shareholder, owning only 10% of the shares, is not pivotal.

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By similar logic, upon seeing a bid between $5 and $10 the uninformed shareholders’ assessment of the synergy value is $12.50. Given the dilution of $2 per share, they will not tender to any bid less than $10.50. Because the uninformed shareholders will not tender to any bid in the assumed bid range, no bid between $5 and $10 succeeds.

Finally, upon seeing a bid below $5 the uninformed shareholders’ expected synergy value is $10. Hence, they will not tender to any bid less than $8. Again, this contradicts the assumed bid range, so no bid below $5 succeeds. Ultimately, because the bidder knows that no bid less than $13 will succeed, only $15 synergy value bidders actually bid.

An STA, however, allows both $5 and $10 synergy value bidders to profitably bid. When an STA is negotiated between a shareholder and a bidder with a $10 value, the resulting bid is $9 (90% of the $10 surplus). Because the uninformed shareholders know the signatory shareholder’s bargaining power is 90%, they infer the synergy value of $10 from the observed bid. Since the bid is greater than the $8 value of the post-dilution shares, the non-pivotal shareholders tender and the bid succeeds. This yields a $0.80 per share profit for the bidder and a $9 per share profit for the uninformed shareholders. Also, note that the large shareholder willingly incurs the cost of becoming informed. The costly STA therefore enables a takeover that yields her a net profit of $700,000. Absent the STA, no takeover occurs. Similarly, when an STA is negotiated between a shareholder and a bidder with a $5 value, the STA bid of $4.50 yields a successful takeover, the bidder profits are $0.30 per share, and the large shareholder’s net profit from the STA is $250,000. Again, absent the STA no takeover occurs and the positive synergy value is not realized.

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A $15 value bidder, however, does not negotiate an STA. The bidder, knowing a $13 bid without an STA will succeed, refuses to bid more than $13. An informed large shareholder, knowing the bidder will bid $13 if no STA is negotiated, refuses to sign an STA with any bid below $13. Since the bidder refuses any bid above $13 and the shareholder refuses any bid below $13, the bid resulting from an STA is the same as the unilateral pooling bid, $13. Because an STA is costly and does not affect the outcome, a $15 bidder does not pursue an STA.

In summary, high value bidders bid $13 without an STA, whereas medium and low value bidders negotiate a costly STA with an informed large shareholder in order to certify their value to the uninformed shareholders. As a result, all three bidder types make a bid and receive all of the shares in the tender offer. In two out of three cases, an STA facilitates an efficient takeover that would not occur otherwise.

Fundamentally, an STA certifies the synergy value to the uninformed shareholders, overcoming the asymmetric information. Decreasing the ex-ante uncertainty decreases the need for an STA. To demonstrate, adjust the ex-ante synergy values in the above example to $7.50, $10, and $12.50.31 In this case, both the high value bidder and the medium value bidder make the pooling bid of $9.25. Only the low type bidder negotiates an STA, resulting in a bid of $6.75. Once again all three bidder types bid and succeed; however, the probability of an STA drops from 67% to 33%.

Finally, note that ownership concentration is also an important factor determining the probability of an STA. In the example, the large shareholder incurs a cost of $200,000 to confirm the synergy value and negotiate an STA. If the subsequent equilibrium bid

31 The results are similar when the decrease in uncertainty is achieved by adjusting the ex-ante probabilities instead of the ex-ante synergy values. For example, leave the synergy values at $5, $10, and $15 but adjust the ex-ante probabilities to 0.2, 0.6, and 0.2, respectively.

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does not yield a profit of at least this amount, she refuses to incur these costs. In this simple example, if the large shareholder owned less than 4.5% of the target firm she would not incur the cost of becoming informed and no credible STA could occur. As a result, 67% of the efficient takeovers would not occur.

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Appendix C: Modeling the STA and premium decisions

What factors determine the existence of an STA? Rationality implies that an STA is signed if and only if the expected surplus to the negotiating parties from signing an STA is positive. The univariate analysis suggests that the expected surplus from an STA depends on the characteristics of the firms involved in the offer. To test this in a

multivariate setting, I define the latent variable y1*i as the expected surplus to the

negotiating parties created by an STA. This surplus is assumed to be a linear function of the observed characteristics zi and xi and an error termε1i :

The independent variables xi and zi are segregated based on their inclusion as independent

variables in the premium model. The xi variables are included as independent variables in the premium model while the zi variables are excluded from the premium regression and serve as identification variables when the Heckman Two-Step procedure is applied. See Maddala (1983) and Greene (2003) for a description of the Heckman procedure.

However, because the expected surplus in Eq. (1) is unobservable, I define the observable dichotomous variable y1i ,which equals one if an STA is signed and zero

otherwise. As a result,

The error termε1i is assumed to be normally distributed. Therefore, probit analysis is

used to estimate Eq. (2).

The final equation in the system models the premium decision. The premium of the offer, denoted by the continuous variable y2i , is assumed to be a linear function of the STA indicator variable y1i , the observed variables xi , and an error termε2i :

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dictate the best method for estimating the above system of equations. If the error terms are uncorrelated then separate estimation of the equations yields consistent estimates. I therefore initially estimate Eq. (3) independent of the probit estimation of Eq. (2). Alternatively, I assume that the two error terms are correlated. I apply a Heckman TwoStep procedure to control for the endogeneity resulting from this assumption.

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