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What Is a Mandatory Acquisition?

A mandatory acquisition refers to a process in which an acquirer, after reaching a statutory or agreed ownership threshold, legally initiates procedures to require remaining shareholders to sell their shares at a predetermined price. This mechanism is designed to consolidate control or facilitate privatization.

It can be viewed as the final stage of a merger or acquisition where, after securing a supermajority of voting rights, the acquirer legally “squeezes out” dissenting minority shareholders by purchasing their shares at a fair price. This reduces governance friction and completes the integration. Mandatory acquisition mechanisms are employed in some jurisdictions to increase M&A efficiency and are typically accompanied by price standards and dispute resolution processes to protect minority shareholders.

What Is the Difference Between Mandatory Acquisition and Mandatory Tender Offer?

Mandatory acquisition focuses on “buying out minority shareholders,” acting as a squeeze-out mechanism where the majority compels the minority. In contrast, a mandatory tender offer requires the acquirer to make an offer to all shareholders once a certain ownership threshold is crossed, ensuring that all minority shareholders have the opportunity to exit at a fair price.

A “tender offer” is a public proposal to purchase shares from all shareholders. A “mandatory tender offer” means that, upon reaching a regulatory threshold, the acquirer is obliged by law to make such an offer. Many markets enforce mandatory tender offer rules without necessarily allowing squeeze-out arrangements. Thus, the two mechanisms serve opposite purposes: the former facilitates control concentration, while the latter ensures fair exit opportunities and pricing for all shareholders.

How Does Mandatory Acquisition Work?

The core principle of mandatory acquisition is based on “threshold + fair price + remedies.” Once an ownership threshold (commonly 90% or 95% in some jurisdictions) is reached, laws permit the initiation of a squeeze-out process. This requires offering a fair price and providing appraisal or litigation remedies for dissenting minority shareholders.

Thresholds are designed to ensure that the will of the overwhelming majority is clear and to minimize governance deadlocks. The price must adhere to fairness principles, usually referencing the highest historical offer, independent valuations, or prevailing market prices, with opinions from independent financial advisors. Dispute mechanisms offer shareholders who object to the price avenues for appraisal or legal challenge. As of 2025, specific thresholds and remedies vary widely across jurisdictions according to local regulations.

How Is Mandatory Acquisition Carried Out in Traditional Markets?

Mandatory acquisitions typically follow a standardized process centered around disclosure, pricing, voting, and settlement:

1. Information Disclosure and Plan Announcement: The acquirer discloses its intentions and key terms; the target company announces potential impacts and timelines; regulatory filings proceed in parallel.
2. Offer Documentation and Independent Opinions: Submission of offer documents, valuation methodologies, and proof of funding; the target’s board and independent financial advisors provide opinions on fairness and recommendation.
3. Threshold Confirmation and Procedural Vote: Verification that shareholding or voting thresholds are met according to local law or corporate bylaws; shareholder meetings or court approvals may be required.
4. Pricing and Payment Arrangements: Finalize consideration type (cash, stock, or mix), payment channels, time windows, and conditions; disclose clawback mechanisms or adjustment clauses.
5. Settlement and Post-Deal Integration: Complete settlement, share cancellation, or delisting; implement appraisal and remedy processes for dissenting shareholders.

Are There Equivalent Practices in Crypto/Web3?

While there is no unified legal framework for mandatory acquisition in crypto, equivalent mechanisms exist in practice—such as token buybacks, protocol migrations, or forced redemption modules triggered by governance votes.

In a DAO, “governance voting” means token holders vote on proposals. If an approved proposal includes buyback or migration terms, smart contracts may be deployed on-chain to repurchase tokens or migrate assets based on treasury net asset value or pre-set ratios. Some projects implement snapshots and deadlines during mergers or upgrades, with unexchanged tokens subject to forced redemption into designated assets after expiry. These practices mirror the “concentrated control + fair exit” logic of mandatory acquisition but differ legally—remedies and enforcement depend on whitepaper terms and applicable jurisdiction.

What Does Mandatory Acquisition Mean for Minority Shareholders or Token Holders?

For minority shareholders, mandatory acquisition provides a definite exit channel—often at a premium—but may also affect price fairness, tax treatment, and payment timing. For crypto token holders, governance-triggered buybacks or migrations mean they must redeem or vote within set deadlines, or face default redemption or asset migration.

Positively, it offers a guaranteed exit at a known price and reduces prolonged disputes; negatively, perceived unfair valuations or information asymmetry can lead to dissatisfaction. It is crucial to pay close attention to official announcements, pricing basis, and available dispute resolution channels.

How Is the Price for Mandatory Acquisition Determined?

In traditional markets, pricing for mandatory acquisitions typically combines historical high offers, independent appraisals, and comparable transactions—ensuring no less than regulatory or market benchmarks. Some jurisdictions require that recent offer prices not fall below prior highest purchase prices and mandate endorsement by independent advisors.

For crypto projects implementing buybacks or migrations, common benchmarks include treasury net asset value per circulating token, fixed ratios, or valuation models based on protocol cash flow. For instance, if a DAO treasury primarily holds stablecoins and government bond-backed RWA, repurchases may be based on treasury NAV; if revenue is volatile, interval pricing or dynamic discounts may apply. Given on-chain price fluctuations and liquidity slippage, projects often set time limits, maximum caps, and risk controls.

What Should Individuals Do When Facing Mandatory Acquisition?

1. Verify Information Sources: Prioritize official company/project websites and regulatory or on-chain channels; for trading scenarios, check Gate’s announcement center and project snapshot or distribution details; beware of phishing links.
2. Understand Key Terms: Review thresholds, pricing methodology, asset types for payment, time windows, fund custody arrangements, and dispute resolution mechanisms.
3. Assess Your Options: Weigh the pros/cons of accepting the offer, holding your position, or disputing terms; in crypto governance scenarios, check if voting is required via Snapshot or on-chain before deadlines.
4. Execute and Keep Records: Submit offers or redemptions per process; retain transaction records and announcement pages; avoid unofficial contracts; for on-chain actions, start with small test transactions and review approval limits and gas fees.
5. Monitor Payment and Tax Implications: Confirm receipt accounts and payment timelines; consider tax impact and secondary market volatility on your holdings.

What Are the Risks and Controversies of Mandatory Acquisition?

The main controversies surround price fairness and procedural justice. Majority squeeze-outs can create conflicts of interest; inadequate remedies or poor disclosure may leave minority shareholders unable to defend their rights.

In crypto/Web3 contexts, additional risks include governance attacks and phishing schemes—for example, concentrating voting power briefly to pass harmful proposals or using fake announcements to trick users into approving transfers. Countermeasures include decentralizing voting power, implementing proposal cooldown periods, adopting multi-signature wallets or timelocks, and enhancing security audits for treasuries and smart contracts.

What Are the Trends in Mandatory Acquisition?

As of 2025, mature markets balance mandatory tender offers with squeeze-out rights by raising disclosure standards, strengthening independent opinions, and protecting minority shareholders. Squeeze-out thresholds typically range from 90% to 95%, subject to local regulations. In Mainland China and some other markets, there is more emphasis on mandatory tender offers over squeeze-outs to ensure fair exit opportunities for all.

In Web3, project governance and capital structures are becoming more sophisticated: more DAOs are integrating buyback/redemption modules, timelock governance, and cross-chain voting; treasuries backed by RWA improve valuation transparency. However, legal frameworks are still evolving—cross-border compliance and investor protection remain key challenges. Despite differing mechanisms, transparency, verifiability, and effective remedies are emerging as industry consensus.

FAQ

What Is the Fundamental Difference Between Mandatory Acquisition and a Regular M&A?

A mandatory acquisition allows an acquirer to bypass target management by making an offer directly to shareholders—forcing the purchase of shares—whereas regular M&A typically requires approval from the target company's board of directors before proceeding. Mandatory acquisitions highlight the acquirer’s initiative and coercive nature; for target companies, this is often viewed as hostile or unfriendly and can spark market controversy.

If My Company Shares Are Subject to Mandatory Acquisition, How Are My Rights Protected?

In a mandatory acquisition, minority shareholders generally have the right to accept the offer price or retain their shares. In most jurisdictions, once an acquirer controls a specified percentage (e.g., 90%), they can force remaining shareholders to sell. It’s recommended to review local laws carefully, assess if the offer price is fair, and seek legal advice when necessary.

How Is the Offer Price Determined in Mandatory Acquisitions?

Offer prices are typically based on a combination of market value, historical share prices, industry benchmarks, and independent valuation reports. Regulators usually require that prices be fair and reasonable—not significantly below market value—to protect minority shareholder interests. If you believe an offer is too low, you may file objections with regulators or courts.

What Common Obstacles Arise in Practice?

Key challenges include prolonged regulatory reviews; anti-takeover defenses by target companies; collective shareholder opposition leading to litigation; and policy barriers in cross-border deals. Acquirers also face cost pressures if their offers fail or are only partially successful—making mandatory acquisitions more complex and costly than negotiated deals.

How Does Mandatory Acquisition Affect Target Company Employees?

Following a mandatory acquisition, the new controlling party may restructure staff for cost optimization or business integration. While this does not always result in mass layoffs, overlapping roles or divisions undergoing strategic changes are at higher risk. Employees should monitor acquirer plans closely, understand local labor protections, and negotiate severance or internal transfer options when needed.