Shareholder Rights and the Bargaining Structure in Control Transactions

We provide a general framework for analyzing shareholder rights in control transactions. When dispersed shareholders have only their statutory rights to vote on the transaction and to appraisal, their inability to make counteroffers leaves them vulnerable to low-ball offers. We show that changing the statutory regime in a way that shifts deal surplus to shareholders would increase ex-ante efficiency, despite the resulting distortion in the market for corporate control. We thus analyze how target managers' fiduciary duties can be designed to strengthen target shareholders' bargaining position, including the optimal policing of an anti-self-dealing norm, the interactions between fiduciary duties and the shareholder vote, and managers' Revlon duties.