European Business Organization Law Review


Financial Tunnelling and the Mandatory Bid Rule*

Jeremy Granta1, Tom Kirchmaiera2 c1 and Jodie A. Kirshnera3

a1 Jeremy Grant: University of Cambridge.

a2 Tom Kirchmaier: Manchester Business School and Financial Markets group, London School of Economics.

a3 Jodie A. Kirshner: London Business School.


In this paper, we use case studies to document how dominant shareholders have circumvented mandatory bid rules to appropriate wealth from minority shareholders. Dominant shareholders are numerous in Continental Europe. Creative compliance with mandatory bid rules reveals the failure of boards and regulators to protect minority shareholders and the difficulties of legislating in this area. We propose enhanced means for protecting their interests.


  • private benefits of control (PBCs);
  • mandatory bid rule;
  • takeover;
  • tunnelling


c1 Corresponding address: Manchester Business School, Manchester M15 6PB, UK. Email:


* Earlier versions of this paper circulated under the title ‘Financial Tunnelling and the Revenge of the Insider System’. We would like to thank Peter Abell, Bernard Black, Irma Clots-Figueras, Luca Enriques, Rafael Gomez, Christoph Kumpan, Sir Geoffrey Owen, Miguel Segoviano and David Webb for helpful comments on earlier drafts. All remaining errors are our own. The views expressed are purely those of the authors.