Definition
A freeze-out is a transaction in which a controlling shareholder uses its control to take the company private, eliminating the minority’s equity. Common structures:
- Long-form merger by the controller — requires majority-of-minority approval and judicial fair-price scrutiny
- Tender offer + back-end merger — controller commences a tender for the minority shares, then squeezes out via §253 or §251(h)
Why it matters
Freeze-outs face heightened judicial scrutiny because of the inherent conflict of interest: the controller is on both sides. Delaware courts apply different standards depending on structure:
- Tender offer freeze-out — under MFW, can qualify for business-judgment review if the controller commits upfront to majority-of-minority approval and an independent special committee
- Merger freeze-out — entire-fairness review unless MFW conditions are met
Distinction
Squeeze-out is the mechanical act of cashing out minorities; freeze-out is the broader transaction (often controller-driven) that uses a squeeze-out as one step.