for dual class shares. Shares of dierent classes are often argued to have dierent

prices because a premium will be paid to the superior voting shares in the case of a

tender oer. This paper takes as given a setup where the shares in a rm are widely

held and regulations require that a tender oer pays the same relative premium to

all share classes. In this setup, it is shown that the shares of dierent classes will

sell at the same price as long as there is a strictly positive probability thateither

the current management issuÆciently strong or that a suÆciently strong rival will

show up. Furthermore, under this condition the regulation is socially optimal in

the sense that the management that gives the highest total rm value will be the

management of the rm. Finally, theregulation is shown to favor (or protect) the

holders of restricted voting shares and this is not necessarily at the expense of the

holders of superior voting shares.

If the weak condition above is not satis ed, the paper demonstrates the existence

of a whole range of possible price equilibria. These equilibria can be decisive for

whether the current management will continue or the rival will take over.

The practical interest of this paper derives from the fact that some European

countries have adopted regulatory restrictions on bids for dual class shares. This

has more or less occurred due to proposed EU Directives. The regulation examined

in this paper applies for example to tender oers in Denmark and empirical results

on the voting premium in Denmark are shown to be consistent with the theoretical

results in this paper.

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Publisher Info

Paper provided by Copenhagen Business School, Department of Finance in its series Working Papers with number 2000-5.

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Length: 37 pages
Date of creation: 01 May 2000
Date of revision:
Handle: RePEc:hhs:cbsfin:2000_005

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Postal: Department of Finance, Copenhagen Business School, Solbjerg Plads 3, A5, DK-2000 Frederiksberg, Denmark
Phone: +45 3815 3815
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Web page: http://www.cbs.dk/departments/finance/
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For technical questions regarding this item, or to correct its listing, contact: (Lars Nondal).

Related research

Keywords: Dual Class Shares; Regulation of Tender Oers; the Voting Premium;

Find related papers by JEL classification:
G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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