One significant problem that has historically characterized freezeout transactions, most notably when they are executed as mergers, is the problem of self-dealing: since the controlling shareholder stands on both sides of the transaction because he is the buyer and typically also dominates the seller’s board, the deal could be used as a mechanism to obtain a disproportionate benefit for the controller at the expense of the minority shareholders. In response to this risk, the Delaware courts have created various mechanisms to protect the minority from exploitation, particularly by subjecting freezeouts to a stringent standard of judicial review (‘entire fairness review’) and/or promoting the use of procedural protections that seek to emulate an arms-length transaction. This chapter presents a critical review of the case law governing freezeouts and discusses some perspectives on potential ways to address aspects that have not yet been addressed.
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