Mergers and Acquisitions and the Value of Control

49 Pages Posted: 25 Apr 2017

See all articles by Gur Aminadav

Gur Aminadav

London Business School

Massimo Massa

INSEAD - Finance

Hong Zhang

Tsinghua University - PBC School of Finance

Weikang Zhu

PBC School of Finance; Finance

Date Written: April 2017


We study how value affects the bargaining game in the market for corporate control. We focus on business groups and propose a novel approach in which we can directly quantify the difference in value between what the buyer gets and what the seller gives. If a firm helps to retain control of a group through a network of cross-ownership, another firm buying such firm does not necessarily acquire control of the group. This implies that if another firm buys such firm, the seller loses control of the group but the buyer does not necessarily acquire it. Therefore, the value of the firm for the buyer is lower than it is for the seller. In these conditions it is not likely that the deal will ever go though. We argue and show that the difference in the value for the buyer and that for the seller is always strongly negatively related to the target market and offer premia as well as to the probability of completion of the deal. The relative bargaining power of bidder and target also affects the probability of the deal being initiated: a greater bargaining power makes it more likely to bid for another one and less likely to be the target itself of a deal. Our results provide a new way of thinking about the value of control in the M&A bargaining game and more in general about the value of firms, showing a dimension that is not directly related to cash flows and that is linked to the pure value of control within groups.

Keywords: bargaining power, Business Groups, M&As, value of control

JEL Classification: G12, G3, G32

Suggested Citation

Aminadav, Gur and Massa, Massimo and Zhang, Hong and Zhu, Weikang, Mergers and Acquisitions and the Value of Control (April 2017). CEPR Discussion Paper No. DP11986, Available at SSRN:

Gur Aminadav (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Massimo Massa

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

Hong Zhang

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083


Weikang Zhu

PBC School of Finance ( email )

Beijing, 100084

Finance ( email )

Boulevard de Constance
77305 Fontainebleau Cedex

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