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Real Market Concentration through Partial Acquisitions

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  • Patricia Charletty

    (Crest)

  • Marie-Cécile Fagart

    (Crest)

  • Saïd Souam

    (Crest)

Abstract

We study horizontal partial acquisitions in an oligopolistic industry in the absence of synergies.Contrary to existing results, we find that a dominant shareholder may choose to acquire sharesin a competitor although the aggregate profit of the group of firms under his control, and eventhe greater group of firms in which he has a stake, is reduced. This is due to a "favorite" e¤ect:after the acquisition, the dominant shareholder will favor the firm in which he eventually holdsthe relatively higher share to the detriment of shareholders of the other firms. For this reason, ablock of shares can be bought at a discount when the value of the firm of the initiator decreasespost acquisition. Moreover, we show that the existence of initial silent toeholds in rivals enhancesthe incentive for a dominant shareholder to buy shares in other firms in the industry, whereascontrolling ones may discourage them.

Suggested Citation

  • Patricia Charletty & Marie-Cécile Fagart & Saïd Souam, 2004. "Real Market Concentration through Partial Acquisitions," Working Papers 2004-07, Center for Research in Economics and Statistics.
    • Handle: RePEc:crs:wpaper:2004-07
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    References listed on IDEAS

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    1. Singh, Rajdeep, 1998. "Takeover Bidding with Toeholds: The Case of the Owner's Curse," The Review of Financial Studies, Society for Financial Studies, vol. 11(4), pages 679-704.
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    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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