Declining MOM Conditions in Freezeout Transactions and the MOOM Alternative

2.1. Weinberger to MFW

A freezeout (also known, with some occasional loss of precision, as a “going private merger,” a “squeeze-out,” a “parent-subsidiary merger,” a “minority buyout,” a “take-out,” or a “cash-out merger”) is a transaction in which a controlling shareholder buys out the minority shareholders for cash or the controller’s stock. The traditional route for executing a freezeout employs the process outlined by the Delaware Supreme Court in Weinberger v. UOP ⁶ and Kahn v. Lynch Communication Systems: ⁷ the target board establishes a special committee (SC) of directors who are independent from the controller; the SC hires bankers and lawyers to advise it; and the SC negotiates with the controller over the terms of the deal, most importantly the price to be paid to the minority shareholders and whether the deal will include a non-waivable majority-of-the-minority closing condition (MOM condition). If the controller and the SC reach agreement, the deal is submitted for the necessary board and shareholder approvals. If approved, the transaction is typically executed as a statutory merger or a two-step tender offer (that is, a first-step tender offer followed by a short-form merger).

Historically, freezeouts were invariably scrutinized under stringent “entire fairness” review, regardless of the procedural protections used. ⁸ In Kahn v. Lynch, ⁹ the Delaware Supreme Court held that approval by a special committee of independent directors or approval by a majority-of-the-minority shares would shift the burden on entire fairness from the defendant to the plaintiff shareholders; but both procedural protections would achieve no further benefit in terms of standards of review. Subramanian (2007) reported that establishing a special committee was by far the most common approach for achieving the burden shift, appearing in 95% of U.S. public-company freezeout transactions between 2001 and 2005. ¹⁰ But without any obvious incremental benefit from a MOM condition, such conditions were rarely used – appearing in only 33% of freezeouts during the 2001-2005 timeframe. Examining a broader sample of freezeouts announced between 2000 and 2013, Restrepo (2021) similarly found that 94% of freezeouts during this era required SC approval, but only 37% of deals included a MOM condition.

The general absence of MOM conditions in most freezeouts meant that there was no shareholder vote that would serve as a backstop against a disloyal or incompetent SC. And even with a loyal and competent SC, the absence of a MOM condition in most freezeouts meant that SCs could not use their recommendation to the minority shareholders as leverage in the negotiations with the controller.

Academic commentators advocated for a judicial regime that would promote both SC approval and MOM conditions in freezeouts (see Gilson & Gordon, 2003; Subramanian, 2005). In his 2005 Cox Communications decision, then Vice-Chancellor Strine proposed in dicta a unified approach. Specifically, if the offer was (1) negotiated and recommended by a special committee of independent directors, and (2) conditioned upon the affirmative tender of a majority of the minority shares, then the business judgment standard of review would apply, regardless of transactional form (merger or tender offer); but if both requirements were not met, then the transaction would be reviewed for entire fairness. Vice Chancellor Strine explained in Cox that the two requirements tracked the two steps of an arms-length merger, namely, board approval and approval from a majority of the shares. ¹¹ Eight years later, in MFW, ¹² then-Chancellor Strine finished the job he had started in Cox Communications by formally adopting the unified approach in a merger freezeout. On appeal, the Delaware Supreme Court affirmed and endorsed the approach. ¹³

Entire fairness is the most stringent standard of review in Delaware corporate law – it requires a de novo inquiry into the fairness of the transaction, which includes both fair price and fair process. Under business judgment review, in contrast, “the claims against the defendants must be dismissed unless no rational person could have believed that the merger was favorable to [the] minority stockholders.” ¹⁴

HC2’s buyout of the remaining 30% of Schuff International illustrates the power of the “get out of jail free” card that MFW provides, and (conversely) the significant leverage that the plaintiffs’ bar had when parties did not avail themselves of the MFW template. In that deal, one of the two directors who served on the special committee of independent directors (Ronald Yagoda) allegedly inquired about the possibility of a consulting contract with the buying company during the freezeout negotiations. ¹⁵ HC2 eventually offered $31.50 per share to the minority shareholders, subject to a MOM condition. A majority of minority shares were tendered at this price, and the deal closed. ¹⁶ Plaintiffs’ attorneys brought a claim for entire fairness review in the Delaware Chancery Court, claiming among other things that the special committee was not independent from HC2, the controller, due to Mr. Yagoda’s request for a consulting contract. In November 2019, HC2 settled with plaintiffs’ counsel for additional consideration of $35.95 per share payable to the minority shareholder class – more than doubling the original deal price that the allegedly conflicted Mr. Yagoda had negotiated. ¹⁷ If instead the parties had been able to avail themselves of the MFW template, the plaintiffs would have had significantly less settlement value.

In the aftermath of MFW, some practitioners were skeptical of the benefits of its template. For example, a 2014 Cleary Gottlieb memo to clients flagged that “high execution risks are often created by an unwaivable majority-of-the-minority” and that “[t]he controlling stockholder will sharply limit its flexibility for an unspecified period” if negotiations broke down (Cleary Gottlieb, 2014; see also Lewkow et al., 2013). However, empirical evidence indicates that these concerns were overstated, or at least outweighed by the benefits of a pathway to business judgment review. Examining the seven-year period after MFW (2013-2020), Restrepo (2021) found that 95% of merger freezeouts required SC approval (compared to 94% before MFW) and 81% of deals included a MOM condition (compared to 37% before). The sharp increase in the incidence of MOM conditions, and no reduction in the incidence of SC approval conditions, indicates that practitioners had largely taken up the invitation offered by MFW, no doubt because of the benefits of business judgment review compared to entire fairness.

2.2. The Importance of the Dual Protections

The dual protections of SC approval and a MOM condition provide important, and distinct, mechanisms for ensuring that minority shareholders receive fair value in a freezeout. First, the SC approval process is a direct response to the problem of opportunistic timing by the controller. It is well-understood in the academic literature that a controlling shareholder might initiate its freezeout precisely when the undisturbed share price is below intrinsic value. ¹⁸ This problem can arise, for example, when the controlling shareholder is aware of value-enhancing, material nonpublic information (“MNPI”) unknown to the market (such as pre-release earnings or forecasts). Because of this information, the value of the firm is greater than reflected in the marketplace. ¹⁹ In this situation, the controlling shareholder can time an offer before the information becomes public to take advantage of a price dislocation. Some academic commentators have gone so far as to argue that rational shareholders, anticipating this ability for the controller to freezeout the minority opportunistically, should bid down the price of a minority share to zero, even though its intrinsic value should be higher (Bebchuk & Kahan, 2000).

The negotiation between the special committee and the controlling shareholder limits the controller’s ability to act opportunistically against the minority, in two ways. First, the special committee will have access to non-public information about the target company. This means that the special committee can extract a price from the controller that includes the value of that non-public information, which the minority are entitled to receive. Without a special committee, a controller could go straight to the minority shareholders with an offer that is above the market price of the company, but which does not reflect the value of non-public information.

Second, and related, the special committee can veto the transaction entirely if the controlling shareholder attempts a freezeout at a time when the company is poised to do well. In such a scenario, the intrinsic value of the target company will be higher than its current market price. Unless the controller pays the minority its fair share of that intrinsic value, the special committee can block the deal. In contrast, when the special committee does not have veto power, the controller can initiate the freezeout at a time when the intrinsic value of the company is higher than its current market value.

Empirical evidence indicates vigorous bargaining by the special committee against the controller. ²⁰ The general picture that emerges from this data is meaningful negotiation between the controller and the SC, in which the controller will typically increase its price significantly from the first offer to the final offer.

A MOM condition then provides a binary check against a captured or negligent SC (see, e.g., Gilson & Gordon, 2003). In this binary check, the minority shareholders will not have the benefit of non-public information (as the SC would) but the shareholders would be able to assess the offer based on public information. The converse of this point is equally important: the MOM condition does not present a meaningful check against opportunism if the controller is exploiting non-public information; but to the extent that the controller has timed its offer to exploit publicly-available information, the MOM condition creates an important check against an ineffective SC. The implication is that the absence of a MOM condition is particularly important for the controller when it is attempting to exploit a disconnect between intrinsic value and market price but the information creating that disconnect is publicly available.

The freezeout of Santander Consumer USA (“SCUSA”) by Banco Santander S.A. (“Banco”), the well-known Spanish retail bank, illustrates exactly this scenario. Banco owned approximately 80% of the SCUSA shares. Banco made its Initial Proposal of $39.00 per share on July 1, 2021. The offer represented a 7.1% premium over the $36.43 stock price on that day.

The next day, on July 2, 2020, Banco amended its Schedule 13D to disclose the offer price publicly. SCUSA’s second quarter had just closed the day before the initial proposal was made, June 30. Banco knew of SCUSA’s projected second quarter results by early June. Banco also knew of SCUSA’s projected 2021 and 2022 results. These second quarter results were extremely good. When they were ultimately reported to the public on July 28, SCUSA beat analyst consensus earnings estimates by a remarkable 94%. SCUSA’s projected 2021 and 2022 net income were also well above consensus estimates.

The merger agreement signed on August 23rd specified that Banco would make a tender offer for the minority shares of SCUSA, but there would be no majority-of-the-minority voting condition, minimum tender condition, or other mechanism for minority stockholder approval. On September 7, 2021, Banco began its tender offer, with an initial expiration date of October 4. The tender offer deadline was extended fourteen times, ultimately expiring on January 27, 2022. Out of the 20% minority shares, approximately 23.5% were ultimately tendered into the tender offer. The deal closed on January 31, and then minority shareholders brought suit challenging the fairness of the transaction. The case settled for $162 million (representing an 8% bump over the deal price) in October 2024.

This represents a paradigmatic case of opportunistic timing by the controlling shareholder. When Banco made its offer on July 1, the intrinsic value of SCUSA was undoubtedly higher than the market price at the time, because the market price did not yet reflect the extremely favorable second quarter results or projected results for the second half of 2021 and 2022. Banco disclosed its initial offer on July 2. This disclosure meant that the market price of SCUSA would be untethered from intrinsic value; rather, the market price would reflect the offer price, any anticipated bump, and the likelihood of closing.

If, counterfactually, Banco had not disclosed its initial offer in early July, then the SCUSA trading price would have reflected something closer to intrinsic value on July 28, when the second quarter results were disclosed. Given the excellent results, and the fact that analysts adjusted upwards their expectations for the remainder of 2021 and 2022 based on those results, ²¹ the SCUSA stock price would have likely “popped” in response to these results, which then would have required Banco to increase its offer substantially to provide the same premium over the new market price.

Indeed, many top analysts commented that the controlling shareholders’ July 1, 2021 offer “capped” SCUSA’s stock price and as a result the stock price no longer reflected standalone, intrinsic value. ²² The important point, for present purposes, is that the strategy of opportunistically timing a freezeout is much less likely to work if there is a MOM condition. If, counterfactually, the SCUSA minority shareholders had a MOM condition, they could have voted down the Banco offer based on their awareness of the (publicly available) second-quarter results and updated analyst forecasts. Instead, the deal closed with very little minority support. The case study illustrates how a MOM condition can provide a check against opportunism by the controller, but only in the instance where the source of the opportunism is publicly-known information.

A second benefit of a MOM condition is that it implicitly subjects the controller’s offer to a “market check.” Without a MOM condition, a freezeout is finalized after the controlling shareholder negotiates the merger with an SC of independent directors: the target board will recommend the deal to its shareholders, and assuming that the controller has more than 50% of the shares, the transaction will be approved. In contrast, with a MOM Condition, there is the possibility of a “deal jumper” who can offer more. For precisely this reason, Clark (1986, pp. 517-18) proposed nearly forty years ago that all freezeouts be subject to a MOM condition: “The most important consequence of [a MOM condition] may not be immediately obvious: It would create the possibility of an auction even when the initiators of the freezeout plan held a majority of the stock.”

In fact, a MOM condition is the only way to subject a freezeout to a market check. This is because a controlling shareholder cannot be compelled to sell its shares to a higher-value bidder (or anyone else). Instead, the vast majority of controlling shareholders indicate in their initial approach to the target that they are not interested in selling to a competing bidder. ²³ As a result, the special committee typically cannot develop options away from the table, which are often considered to be an important source of bargaining power in negotiations generally. ²⁴

3.1. Overview of the Trilogy

This section summarizes the “SolarCity Trilogy”: SolarCity in April 2022, BGC Partners in August 2022, and Straight Path in October 2023. Viewed collectively, these cases chart a new course for entire fairness doctrine in the Delaware courts.

3.2. Implications for Transactional Practice

As mentioned earlier, entire fairness is the most stringent standard of review in Delaware corporate law because it requires a de novo inquiry into the fairness of the transaction, which includes both fair price and fair process. As a result, there is a strong perception that entire fairness is very difficult to overcome, with some commentators even characterizing the standard as “outcome-determinative” (Fried et al., 2023). For example, in SolarCity, the court observed that “defense verdicts after an entire fairness review of fiduciary conduct are not commonplace.” ²⁹ Similarly, the court observed in earlier cases that “because the effect of the proper invocation of the business judgment rule is so powerful and the standard of entire fairness so exacting, the determination of the appropriate standard of judicial review frequently is determinative of the outcome of derivative litigation”. ³⁰ And Bainbridge (2025) argues that “[a]lthough the choice between the business judgment rule and entire fairness is not automatically dispositive, there is no doubt that the latter is a much more demanding standard under which defendants rarely prevail.”

The fact that most lawsuits challenging freezeouts settle is consistent with this perception. During our sample period, more than 90% of the cases settled, and when they ended with a court decision, that decision was a dismissal at the pre-trial stage, typically because entire fairness was inapplicable. Although there are several factors that may explain this high settlement rate, one factor that in all likelihood contributes to it is the fact that defendants anticipate that proving entire fairness is difficult, which makes settling an attractive option. To be clear, before the SolarCity trilogy, defendants had been successful in some entire fairness actions challenging freezeouts. ³¹ However, those cases were rare events in relation to the universe of transactions (again, more than 90% of the cases settle), and they were particularly rare in the two decades preceding the SolarCity trilogy: although the defendants were successful in five cases in the years immediately after Weinberger (1990–1995), we found only two instances in which the defendants succeeded between the end of that period and SolarCity. ³²

The SolarCity trilogy likely altered the extent to which entire fairness was perceived to determine the outcome of the case. Although none of the SolarCity trilogy transactions were freezeouts, all of them invoked entire fairness review, in all of them the defendant survived such review, and all of them involved conflicts of interest that were comparable to those in freezeouts. ³³ In addition, the cases were very economically salient and decided within a relatively short period, which creates the impression of a pattern in the case law. For example, one leading firm observed that “Although, historically, application of the entire fairness standard generally was outcome-determinative in favor of plaintiffs, over the past few years, in several cases, the court has found that the standard was satisfied” (Fried et al., 2023). And as mentioned earlier, in the aftermath of the trilogy, approximately a dozen of lawyers and bankers told Reuters, perhaps in part because of the trilogy, that there is a “growing realization” among controlling shareholders that the financial benefit of depriving minority shareholders of a MOM condition “outweighs the legal risks” (Sen & Hals, 2024).

Meanwhile, as the benefits of MOM conditions recede, activists continue to lurk in freezeouts. Controllers might reasonably fear that an activist will buy a stake in the minority float and then threaten to veto (or “hold up”) the deal unless the minority shareholders received more money. The possibility of a blocking coalition might thus push a controller to not give a MOM condition despite the doctrinal benefits under MFW.

Prior empirical evidence shows that activist campaigns in M&A are not uncommon and can be very consequential. In particular, Jiang et al. (2018) examine 227 activist interventions over 3,000 deals from 2000 and 2015. They find that activism was especially frequent in transactions with perceived conflicts of interest, including in particular “going-private” transactions (which the authors define as transactions in which a public company is converted into a private company by insider-led buyouts). Specifically, 42% of the deals involving activists are going-private deals. ³⁴ The authors then examine the effects of activism and find that when activists are involved in a transaction, the probability of deal completion (that is, the probability that the target is sold to the announced bidder) is 5.8 percentage points lower relative to the full-sample completion rate of 83.3%. When they examine the “black box” of failed deals, they further find that activists likely played a role in about two thirds of the deals. The transactions in which the activist “likely played a role” include, among other situations, transactions in which the activist’s vote was “pivotal.” The authors also find that activism was associated with a premium revision of 3.4 percentage points across all deals (including failed ones), or 4.3 percentage points conditional on deal competition.

We return to the question of whether holdup is desirable as a policy matter in Section 6 below. From the perspective of the controlling shareholder, however, holdup is clearly undesirable. And, once again, the SolarCity trilogy changed the doctrinal calculation: with entire fairness review no longer perceived as onerous (thereby reducing the benefits of a MOM condition), and with perceived holdup risk increasing (thereby increasing the costs of giving a MOM condition), transactional planners are no longer as eager to provide MOM conditions as part of the freezeout process.

Practitioners have debated the wisdom of this doctrinal shift. Vallaro et al. (2024), for example, argue that the SolarCity trilogy represents “excessive deference in scenarios where exacting scrutiny was necessary” because all three deal processes (in the court’s own assessment) had significant flaws. We do not engage with this doctrinal debate in this article. Our interest is in examining the natural prediction that emerges from the SolarCity trilogy (i.e., whether the trilogy resulted in less use of MOM conditions) and the economic consequences of that prediction.

6.1. Holdup Risk

Holdup risk can take two forms. The first arises when existing shareholders threaten to vote against the deal in order to extract a higher price from the controller. ⁴⁸ We believe that there is no serious policy argument against this form of holdup risk. Existing shareholders clearly have the right to vote against the deal. Against this baseline right, articulation of the terms on which those shareholders would support the deal seems unobjectionable. In addition, the controlling shareholder goes in “eyes wide open” regarding the existing shareholder base, and so (from an equitable perspective) would seem to be taking the risk of disapproval from existing shareholders when it agrees to a MOM condition.

The second case of holdup comes from activist shareholders who buy shares after the deal is announced but before the record date for the shareholder vote to satisfy the MOM condition. Elliott, for example, bought $800 million of the minority float in Santander Consumer after the freezeout by Banco Santander was announced (but before the record date), which amounted to approximately 33% of the minority shares outstanding. As mentioned in Section 2.2, the deal did not have a MOM condition, so Elliott was unable to block the deal. Instead, Elliott brought a fiduciary duty class action against Banco Santander and Santander Consumer. The case settled for $162 million (representing an 8% bump over the deal price) in October 2024 (Konnath, 2024).

When the deal does have a MOM condition, Elliott and other activists can buy shares and threaten to veto the deal unless the controller pays more. This threat of holdup becomes more credible as the deal price is less fair. To see the point, if the deal price already represents fair value to the minority, the controller can reject the activist’s demands and (effectively) dare the activist to vote against the deal. If the deal is in fact voted down even though (by assumption) the deal price represents fair value, the activist will inevitably suffer a loss as the trading price declines to the pre-deal unaffected value. Putting the point the other way, the threat of holdup is likely effective only when the deal price does not reflect fair value. In this scenario, the activist can credibly threaten to vote against the deal; and if the deal nevertheless goes through, the activist will have a strong appraisal claim and/or an entire fairness claim against the controller (so-called “appraisal arbitrage”).

The point is that while the word “holdup” has negative connotations, we believe that a careful analysis reveals important benefits. As mentioned, the threat of holdup is most effective when the deal price is unfair; and conversely, the threat of holdup is least effective when the deal price is fair. In this sense, the holdup threat operationalizes the aspiration of a MOM condition, namely, to block unfair deals and to facilitate fair deals. ⁴⁹

6.2. Appraisal Arbitrage

Activists who buy shares after the deal announcement but before the record date amplify the effectiveness of the appraisal remedy and the (related) class action claim. In doing so, activists create two beneficial spillover effects for all shareholders. First, small shareholders can sell their shares to activists between the announcement and the shareholder meeting date, at a higher price than they would otherwise. ⁵⁰ Second, foreseeing the possibility that appraisal arbitrage would aggregate dissatisfaction with the deal, an acquiring company will offer more to all shareholders in the first instance, and the selling company will insist on a robust deal process, all in order to minimize appraisal risk. ⁵¹

For these reasons, commentators in legal academia generally agree that appraisal arbitrage is socially desirable. ⁵² Opponents of appraisal arbitrage argue that acquirers pay less overall because they must keep more “in their pocket” to pay appraisal petitioners. ⁵³ This is only true if the sell-side deal process is not sufficiently meaningful to warrant deference to the deal price. If an acquirer is willing to tolerate a meaningful sell-side deal process, then appraisal risk is minimized if not eliminated. And if an acquirer is not willing to tolerate a meaningful sell-side process, then the deal is likely inefficient to begin with.

The logic of permitting appraisal arbitrage is best seen by the example of class action litigation against freezeouts, a close cousin to appraisal litigation. Indeed, some freezeouts (such as Continental Resources) are challenged in both ways: certain shareholders will aggregate shares and seek appraisal, while plaintiffs’ attorneys will bring a parallel class action suit on behalf of all minority shareholders. While the elements are different in the two claims (notably, a class action requires a fiduciary duty breach while an appraisal claim does not), the criticisms of the deal process from petitioners (in the appraisal litigation) and the plaintiffs (in the class action litigation) are virtually the same in the two parallel actions.

The critical point for present purposes is that the shareholder class in the class action challenge will invariably be the shareholders who held shares at the time of the closing of the deal, because these were the shareholders who were allegedly injured by the transaction. Many of these shareholders will have bought shares after the announcement of the deal, yet there is not (to our knowledge) any suggestion by academic or practitioner commentators that they should not be members of the shareholder class. In our view, there is no conceptual reason why shareholders who bought shares after the announcement of the deal for purposes of seeking appraisal should be treated differently from shareholders who participate in the class action who bought shares after the announcement of the deal.

In fact, in some freezeouts, investors buy shares after the deal announcement not to seek appraisal, but precisely to participate in the anticipated class action litigation. For example, in the freezeout of Endeavor Holdings in April 2025 (one of the largest deals in our sample that did not include a MOM condition), the deadline to submit an appraisal demand was February 4, 2025. Famed activist Carl Icahn announced that he had bought 8.4% of the shares in March 2025 – after the deadline for appraisal had passed. In fact, from trading volumes it appears that he bought most of the shares on Friday, March 21st, just one trading day before the deal actually closed (Levine & Greifeld, 2025); and the Endeavor stock price on that day closed at $29.25 per share – a full $1.75 per share above the deal price. Icahn could not exercise his appraisal rights, and there was no arbitrage spread that he could exploit (in fact, the arbitrage spread was negative) but he could certainly participate in the class action litigation, which (although not yet filed at the time the deal closed) was widely viewed as being evitable. In our view, if there is no objection to Icahn’s participation in the class action litigation (and we know of none), then it would seem that there should equally be no objection to other shareholders who bought shares after the announcement of the deal – by some reports $1 billion worth of shares – for the sole purpose of seeking appraisal on those shares after the closing.

6.3. The MOOM Alternative

While holdup risk that arises from MOM conditions might be beneficial as a policy matter, and appraisal arbitrage (which is the investment strategy that permits holdup) provide additional positive spillover effects for other shareholders, it is clear that controllers prefer the deal certainty that comes from no MOM condition. That is, what might be socially optimal (MOM condition) may not be privately optimal for the controller. The desire for deal certainty seems especially legitimate when the risk of holdup is particularly acute, like in a controlled company with a small minority percentage float (e.g., 15%) and/or a small dollar value minority float.

To address this disconnect, we propose the MOOM alternative: approval by a majority of the original minority shares. Under this approach, controlling shareholders could satisfy the MOM condition by subjecting the deal to approval by the majority of the minority shareholders at the time of the deal announcement. Activists who buy shares after the deal announcement date would not be able to vote those shares. ⁵⁴ Of course, this nullifies the second type of holdup threat we identified in Section 6.A, thereby discouraging activists from attempting holdup in the first place.

We think that Delaware courts should give some weight to the presence of our MOOM alternative because the condition represents a reasonable compromise between the socially desirable effects of a MOM condition and greater execution certainty for the controller. We leave open the specific contours of this doctrinal implication. However, we believe that a freezeout conditioned on SC approval and a MOOM condition should not receive business judgment deference. As discussed in Sections 6.A and 6.B, a MOOM condition is a distinct second-best alternative to a MOM condition because the holdup risk that arises from a MOM condition has positive social welfare effects, so MOM conditions should continue to be encouraged by Delaware corporate law.

It is worth mentioning some operational aspects of our MOOM proposal. Delaware corporate law requires a “record date” for a shareholders’ meeting; and all shares held on the record date are eligible to vote at the meeting. The simplest way to implement a MOOM condition would be setting the record date for the shareholder meeting as the announcement date of the transaction. Delaware corporate law requires that the record date must be within 60 days of the shareholder vote, ⁵⁵ so if a 60-day timeline is feasible then the record date approach would be the cleanest mechanism for implementing a MOOM condition. However, the practical reality of putting out a proxy statement and soliciting proxies typically requires more than 60 days. Empirically, we find that only a few companies in our freezeouts sample took less than 60 days from announcement to shareholders’ meeting. Although none of these companies had a 60-day clock ticking, we nevertheless believe that most companies would have difficulty getting from an announced deal to a shareholder vote within 60 days.

However, the MOOM condition could be implemented by specifying in the announcement of the deal that only shares held at that date would be counted for purposes of the MOOM condition. This is consistent with other aspects of freezeout practice, in which (for example) shares that are held by affiliates of the controller or other rollover shareholders are not counted for purposes of a MOM condition; ⁵⁶ and in which shares that are held by conflicted shareholders are similarly not counted. ⁵⁷ The only required shareholder vote, as a matter of statutory law, is approval from a majority of the shares, so as long as the controller votes its shares in favor of the deal this requirement will be satisfied. The MOM condition (and variations such as a MOOM condition) are constraints imposed on the deal solely by the parties themselves, and as such can be tailored to the relevant business objectives. Although the determination of beneficial owners on a particular date is complicated and often imperfect (see, e.g., Laster, 2016), any deal that must set a record date (which is to say, all freezeouts) must go through this exercise. Therefore, the MOOM alternative imposes no additional complexity or cost on the proxy voting system. ⁵⁸

The specific cutoff date for the MOOM condition will depend on the nature of the controller’s ownership, which (in turn) has implications for the first public announcement of the deal. Schedule 13D under the 1934 Act imposes a continuing reporting obligation on the filer, which means that a controlling shareholder subject to Schedule 13D would have to publicly report its offer to the controlled company within two days of making the offer. Schedule 13D generally applies to investors who own more than 5% of a company, which is a hurdle that all controllers would meet. However, controlling shareholders are not subject to Schedule 13D if they owned more than 5% of the controlled company at the time of the company’s IPO. These controllers would have the right but not the obligation to report their initial offer publicly.

In our freezeouts sample, we find that approximately half of all freezeouts are announced publicly at the time of the initial offer from the controller (either by the controller or by the controlled company or in a joint press release between the two), while the other half are announced only at the time of the definitive agreement between the controller and the special committee. In both of these scenarios, the record date for fulfilling the MOOM condition would be set on the date of the first public announcement of the freezeout.

A recent transaction illustrates the feasibility of the MOOM condition. On May 5, 2025, after the working paper version of this article was published online, Skechers USA announced that it would be acquired by Robert Greenberg, its founder and owner of 60% of the voting shares, along with his private equity partner 3G Capital, for $9.4 billion. Consistent with the trend documented in this article, the freezeout was approved by a special committee of independent directors but it did not include a MOM condition. Unlike a typical freezeout, in which the controller will roll over most or all of his equity into the private company, Robert Greenberg, his son Michael Greenberg, and Skechers COO David Weinberg cashed out most of their equity, receiving $57 in cash and only $6 in equity in the private company for each public share they owned. The deal provides minority shareholders with an election to receive the same consideration as the controllers ($57 cash/$6 equity) or $63 in cash. ⁵⁹

The ability to receive the same consideration as the controllers arguably avoided additional disclosures under U.S. security laws. ⁶⁰ However, activists observed to us that the election was largely illusory. No minority shareholder would take illiquid stock in Skechers, with no information rights and no timeline for a liquidity event. And according to the activists, this is exactly what Greenberg wanted: the illusion of equal treatment, to satisfy regulators and deter the plaintiffs’ bar, but the reality of a private company owned entirely by himself and his buyout partners.

Because the freezeout does not include a MOM condition, there is no standard holdup risk as described in this article. However, given the minority shareholder election, as well as the controller’s preference for having the minority elect the all-cash option, there is a more subtle form of holdup risk, namely, that an activist would buy shares with the sole purpose of threatening to take the mixed consideration, in order to get a higher cash buyout price.

However, Greenberg and 3G Capital foresaw this possibility and cut it off with a version of a MOOM condition: “[O]nly the Legacy Shares [defined as Skechers shareholders as of the announcement date] will be eligible to be converted into the Mixed Election Consideration [and] all shares of Skechers Common Stock that are not Legacy Shares will be converted into Cash Election Consideration.” ⁶¹ Instead of stripping away the voting rights of shares bought after the announcement of the deal, the Skechers freezeout strips away the right to take the mixed consideration for post-announcement shareholders. This structure reduces the holdup threat from activists in the Skechers freezeout, in the same way that our MOOM condition does so for freezeouts generally. While the specific right that is stripped away is different, as mentioned above, the case study illustrates the general viability of the MOOM mechanism.

6.4. Implications of Delaware SB21

In a way, our MOOM proposal has greater salience after the Delaware legislature’s April 2025 amendments to the Delaware corporate code. Outside of the context of freezeouts, these amendments, known as Senate Bill 21 (“SB21”), eliminated the requirement of MOM approval for transactions between the corporation and its controlling shareholder (Del. Gen. Corp. L. § 144 (b)). A non-freezeout transaction with a controlling shareholder is now subject to business judgment review if the transaction is conditioned upon approval by a special committee of independent directors or approval from a majority of the minority shares voted. ⁶² This legislative amendment effectively reverses the Delaware Supreme Court’s 2024 decision in In re Match Group, Inc. ⁶³

More importantly for the purposes of this paper, SB21 codifies the requirement of special committee approval and MOM approval for a freezeout to obtain business judgment review (Del. Gen. Corp. L. § 144 (c)). In doing so, SB21 rightly acknowledges that freezeouts are different from other transactions with a controller because of their end-game, high-stakes nature. But SB21 nevertheless weakens the special committee requirement in freezeouts in three important ways. First, SB21 requires that only a majority of the special committee are independent from the controller, not the entire committee. Second, the freezeout does not need to be conditioned upon special committee approval from the outset (i.e., the ab initio requirement from MFW ⁶⁴ and Synutra ⁶⁵ ), but rather only at the time it is submitted to the shareholders. And third, the special committee no longer needs to be empowered to select and retain its own financial and legal advisors.

Each of these changes, on its own, reduces the effectiveness of special committees as a bargaining agent for minority shareholders. Taken together, they can compromise the special committee’s ability to negotiate on behalf of the minority. The requirement that only a majority of the directors are independent introduces the possibility of a “spy” who can report back to the controller on the special committee’s deliberations. ⁶⁶ The elimination of the ab initio requirement means that, instead of “self-disabling” himself from the beginning of the negotiations, the controlling shareholder could agree to an SC or MOM condition as a mid-stream concession. ⁶⁷ And the elimination of the requirement that the special committee must hire its own bankers and lawyers cuts against longstanding Delaware doctrine indicating that such expert advisors are critical for a well-functioning special committee process.

With weaker special committees, the back-end protection of majority-of-the-minority approval becomes more important. Our MOOM proposal offers a mechanism to incentivize minority shareholder approval in cases in which the controlling shareholder may not otherwise agree to any minority voting condition.

We also observe, however, that after SB21, a MOM condition requires approval by the majority of the minority shares present at the shareholder meeting, not the majority of the minority shares outstanding. This makes the MOM condition easier to satisfy and therefore creates the incentives of controlling shareholders to implement it. In this sense, SB21 attenuates to some extent the urgency of the MOOM condition – although we emphasize that the reform does not fully eliminate holdup risk and therefore the potential usefulness of the MOOM condition. ⁶⁸

6.5. Limitations of the MOOM

Perhaps the most important limitation of the MOOM condition is that it eliminates the collateral benefits of holdup risk, that is, the ability of activist investors to invest in the target company and then block undesirable deals. This aspect becomes especially relevant when one takes into account the fact that activist investors (and other institutional investors) typically have the ability to accumulate greater stakes in a particular company than what a retail investor could accumulate, which, together with the relative sophistication of activists and other institutional investors, gives those investors stronger incentives to invest information and the ability to act on that information. In other words, the capital markets significantly rely on activist investors and other institutional investors to mitigate the collective action problems, rational apathy, and lack of sophistication that often characterize retail investors (e.g., Black, 1992). For this reason, we reiterate that the MOOM proposal is a second-best alternative to the MOM condition and therefore courts should not give the same weight to both conditions.

In addition to the elimination of the collateral benefits of holdup risk, we also recognize two additional potential concerns about the MOOM. ⁶⁹ The first is a potential broader reduction in the incentives of activists to invest in information. When activists invest time and resources to obtain information about a freezeout, that investment can yield two benefits: it can influence the immediate voting outcome of the transaction, and it also can guide value-enhancing decisions more broadly. However, if activists are precluded from influencing the voting outcome of a transaction, the two benefits of investment in information disappear – which may undermine the efficient allocation of resources in an economy.

While we recognize this concern, we reiterate that our MOOM condition would not lead to a full shift to business judgment review; as a result, controlling shareholders will still have incentives to implement MOM conditions, thus helping preserve the incentives of activists to invest in information. In addition, when activists research a freezeout target, that research is fairly specific, so the link between the MOOM condition and a loss of the second benefit of investment in information (i.e., general guidance of value-enhancing decisions) may be tenuous.

The second concern is complexity in terms of standards of judicial review. As discussed earlier, Delaware law already employs different standards of judicial review for different levels of procedural protections: if a freezeout is conditioned on SC and MOM approval, it is reviewed under the business judgment rule; if the transaction does not include those protections, it is reviewed under entire fairness review; and, if post SB21, courts continue to apply the doctrine articulated in Kahn v. Lynch Communication Systems, ⁷⁰ then a freezeout would be subject to entire fairness review, with the burden of proof on the plaintiff, if the transaction is conditioned on only on one of the procedural protections. The concern, then, is that to operationalize the MOOM condition without destroying the incentives to adopt the MOM framework, Delaware courts would be forced to create new intermediate standards of review between entire fairness and the business judgment rule.

Although, once again, this is a legitimate concern, we emphasize three considerations in response to it. First, courts have at their disposal tools to operationalize the MOOM without the need of creating new standards of judicial review. For example, the presence of the MOOM condition may simply be one piece of evidence (among many others) that weighs in favor of a finding that the transaction was entirely fair. In fact, courts routinely have to consider multiple pieces of evidence in assessing the totality of the characteristics of a transaction, so the MOOM condition may simply be one of them.

Second, in large part because of the concern about potential complexity in the standards of judicial review, we leave open the question of exactly how much weight courts should give to the MOOM condition. A full operationalization of the condition could justify an entirely separate project, so that task is beyond the scope of this paper.

And third, despite the operationalization challenges posed by the MOOM condition, we believe it is still a useful doctrine. For the reasons described in this paper, minority approval is an important protection, and the MOOM condition is a way to ensure that at least some form of minority approval remains in place.