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Mergers and partial ownership

Foros, Øystein; Kind, Hans Jarle; Shaffer, Greg
Working paper
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URI
http://hdl.handle.net/11250/163184
Date
2010-01
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  • Discussion papers (SAM) [578]
Abstract
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.
Publisher
Norwegian School of Economics and Business Administration. Department of Economics
Series
Discussion paper
2010:1

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