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The article investigates the effects of lockups, devices used to compensate unsuccessful bidders. Lockups are relevant in contexts in which sales have auction-like characteristics. Bankruptcy and the market for corporate control are two such situations, since the governing legal regimes prevent sales from being swiftly consummated and require sellers to take the most favorable offer that emerges during the waiting period. Existing scholarship has considered lockups in both areas. The analysis of lockups in the market for corporate control is fairly well developed. This article shows that it is importantly incomplete because it fails both to distinguish between ex ante and ex post analysis of lockups and to apply the auction theory developed by economists. The bankruptcy scholarship lags behind the analysis of mergers and acquisitions and is even less satisfactory. After developing the correct picture of lockups in mergers and acquisitions, the article applies it to the bankruptcy context, showing how differences in the appropriate goals require different standards for courts reviewing lockups.

Publication Title

Yale Journal on Regulation

Publication Citation

17 Yale J. on Reg. 94 (2000)