Minority Blocks and Takeover Premia

Mike Burkart, Denis Gromb, Fausto Panunzi

Series number :

Serial Number:

096/2005

Date posted :

September 01 2005

Last revised :

SSRN

Keywords

Corporate governance •
ownership structure •
takeovers •
minority blockholder •
post-takeover share value

This paper analyses takeovers of companies owned by atomistic shareholders and by one minority blockholder, all of whom can only decide to tender or retain their shares. As private benefit extraction is ineffcient, the post-takeover share value increases with the bidder's shareholdings.

In a successful takeover, the blockholder tenders all his shares and the small shareholders tender the amount needed such that the post-takeover share value matches the bid price. Compared to a fully dispersed target company, the bidder may have to offer a higher price either to win the blockholder's support or to attract enough shares from small shareholders.

View full abstract