Freezeouts of Cross-Listed Issuers
In recent years, the popular press and academic commentators have expressed a concern that controlling shareholders of foreign issuers with a cross-listing in the United States (and especially Chinese issuers) are exploiting U.S. investors by paying unfairly low prices in freezeout transactions – that is, transactions in which the controlling shareholder buys the remaining shares […]
Fernán Restrepo is an Assistant Professor of Law at the UCLA School of Law, and Guhan Subramanian is the Joseph H. Flom Professor of Law and Business at Harvard Law School and the H. Douglas Weaver Professor of Business Law at Harvard Business School. This post is based on their recent paper.
In recent years, the popular press and academic commentators have expressed a concern that controlling shareholders of foreign issuers with a cross-listing in the United States (and especially Chinese issuers) are exploiting U.S. investors by paying unfairly low prices in freezeout transactions – that is, transactions in which the controlling shareholder buys the remaining shares of the corporation for cash or stock. The basic idea is that freezeouts of foreign cross-listed issuers are not subject to the same rules and enforcement mechanisms that apply to U.S. companies, which facilitates the underpricing. Fried (2021), for instance, states:
