How does the Mandatory Bid Rule Reshape Corporate Acquisition Deals?

The mandatory bid rule (MBR) requires an acquirer who crosses a specified ownership threshold in a public company to offer to purchase the remaining shares at a fair price. How does the MBR reshape corporate acquisition deals? Does the change in deal structure promote fairness among shareholders? To address these questions, we examine how the adoption of the MBR affects the structure of corporate acquisition deals, using a sample of acquisitions from 41 countries over 1981-2023. We find that, following MBR implementation, voluntary public acquisition deals become more prevalent, whereas privately negotiated deals become less common, thereby providing shareholders with greater opportunities to exit their investments. In addition, the rule is associated with more lowballing—lower bid prices or control premiums in threshold-crossing acquisitions after the equal-pricing reference period expires—with stronger effects under shorter reference periods. Overall, while the MBR promotes equal treatment by giving all shareholders an opportunity to sell, it can generate unintended lowballing in subsequent deals, particularly when reference periods are short. This underscores the importance of careful MBR design, especially in setting the equal-pricing reference period, for achieving its fairness objectives.