Squeeze-Out
A mechanism allowing a majority shareholder above a statutory threshold to compulsorily acquire remaining minority shares.
What is Squeeze-Out?
A squeeze-out (also called a freeze-out or compulsory acquisition) is a legal mechanism that allows a majority shareholder who has crossed a statutory ownership threshold—typically 90% of outstanding shares under the Delaware General Corporation Law and most US state laws—to acquire all remaining minority shares without needing minority shareholders' consent. The consideration paid is typically at the same price as the triggering tender offer or a court-determined fair value. Squeeze-outs are commonly used to complete the final stage of a tender offer, eliminating the administrative and regulatory burden of maintaining a public minority float. After the squeeze-out, the company is delisted from the stock exchange and becomes wholly private. Courts in Delaware apply enhanced scrutiny to squeeze-out prices to protect minority shareholders from unfair treatment.
Example
In February 2010, Berkshire Hathaway Inc. completed a tender offer for the approximately 22.6% of Burlington Northern Santa Fe (BNSF) Railway shares it did not already own at $100 per share. Upon owning more than 90% of BNSF's outstanding shares, Berkshire exercised its right under Delaware law to effect a short-form squeeze-out merger at $100 per share without a separate shareholder vote, acquiring the remaining minority shares and taking BNSF fully private. The transaction valued BNSF at approximately $44 billion in total.
Source: Berkshire Hathaway SEC Filings