Transfers of corporate control in firms with noncontrolling blockholders

I model the choice between a negotiated block trade and a public tender offer as means of acquiring control in a firm with a large minority blockholder. Potential acquirers differ in their (privately known) value‐creation ability. In equilibrium, block trades are made by lower ability acquirers compared to tender offers. The equal opportunity rule (EOR) and the “freezeout” rule are complements in promoting efficiency of control transfers. Stronger investor protection may hamper value‐increasing takeovers when the EOR is present. The model also delivers predictions about announcement returns and the incidence of block trades and tender offers under different legal regimes.