The "going private" transaction : a genre of minority shareholder squeezeout
University of British Columbia
Master of Laws - LLM
The phrase "going private" refers to a transaction in which the controlling shareholders who are instrumental in the management of a "public" company seek to terminate public participation and transform the firm into a private or closely-held entity. Minority shareholders of such companies located in Canada and the United States have described this process as unfair, disgraceful and a perversion of the whole financing process because of the ability of the insiders to time their departure, to dictate the amount of compensation they are to receive and to regulate the amount of disclosure which would otherwise enable them to judge the adequacy of the consideration offered. Consequently, they have sought to enjoin going private transactions on one of two grounds. On one hand, they have objected to being forced to give up their investment even at the fairest price, claiming, in effect, a vested right to remain as shareholders of the issuer. Alternatively, when the applicable corporate statute or constating documents of the Company expressly permit shareholder squeezeouts, they have complained of being deprived of the intrinsic or fair value of their shares and denied the procedural safeguards which would better enable them to make informed investment decisions. This thesis is directed to a study of these criticisms. Following a review of the assorted techniques used in squeezeout transactions and the existing procedural safeguards available to the minority, the claim by minority shareholders that they have a vested right to remain as shareholders of a public company is analyzed and rejected. Instead, it is argued that Canadian courts should only enjoin squeezeout transactions in jurisdictions which have not enacted legal rules designed to assist shareholders in commanding the intrinsic value of their shares. Assuming that an acquiror of minority shares has complied strictly with all corporate and securities procedural requirements, but the price offered for minority shares is less than their intrinsic value, an injunction should be issued only on the grounds that the opportunity to vote as a separate class, or the controlling shareholders or directors have committed a breach of a fiduciary duty owed to the Company.
Law, Peter A. Allard School of