Mergers and Partial Ownership
Norwegian School of Economics (NHH) - Department of Economics
Hans Jarle Kind
Norwegian School of Economics & Business Administration (NHH); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Norwegian School of Economics (NHH) - Department of Economics
University of Rochester - Simon Graduate School of Business
CESifo Working Paper Series No. 2912
Simon School Working Paper No. FR 10-11
In this paper we compare the profitability of a merger to the profitability of a partial ownership arrangement and find that partial ownership arrangements can be more profitable for the acquiring and acquired firm because they can result in a greater dampening of competition. We also derive comparative statics on the prices of the acquiring firm, the acquired firm, and the outside firms. In a dual context, we show that a cross-majority owner may have incentives to sell a fraction of the shares in one of the firms he controls to a silent investor who is outside the industry. Aggregate ex post operating profit in the two firms controlled by the cross-majority shareholder then increases, such that both the cross-majority shareholder and the silent investor will be better off with than without the partial divestiture.
Number of Pages in PDF File: 27
Keywords: media economics, mergers, corporate control, financial control
JEL Classification: L13, L22, L82working papers series
Date posted: January 21, 2010
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