Mergers and Partial Ownership

27 Pages Posted: 21 Jan 2010

See all articles by Øystein Foros

Øystein Foros

Norwegian School of Economics (NHH) - Department of Business and Management Science

Hans Jarle Kind

Norwegian School of Economics & Business Administration (NHH); CESifo (Center for Economic Studies and Ifo Institute); Norwegian School of Economics (NHH) - Department of Economics

Greg Shaffer

University of Rochester - Simon Business School

Date Written: January 2010

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.

Keywords: media economics, mergers, corporate control, financial control

JEL Classification: L13, L22, L82

Suggested Citation

Foros, Øystein and Kind, Hans Jarle and Shaffer, Greg, Mergers and Partial Ownership (January 2010). CESifo Working Paper Series No. 2912, Simon School Working Paper No. FR 10-11, Available at SSRN: https://ssrn.com/abstract=1539366

Øystein Foros

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

Hans Jarle Kind (Contact Author)

Norwegian School of Economics & Business Administration (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway
+47 55 583 890 (Phone)
+47 55 583 901 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Norwegian School of Economics (NHH) - Department of Economics

Helleveien 30
N-5035 Bergen
Norway

Greg Shaffer

University of Rochester - Simon Business School ( email )

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