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Mergers and Partial Ownership

Author

Listed:
  • Foros, Øystein

    (Dept of Finance and Management Science, Norwegian School of Economics and Business Administration)

  • Kind, Hans Jarle

    (Dept. of Economics, Norwegian School of Economics and Business Administration)

  • Shaffer, Greg

    (University of Rochester and University of East Anglia)

Abstract

In this paper we compare the profitability of a merger to the pro…tability of a partial ownership arrangement and …nd that partial ownership arrangements can be more profiable 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 o¤ with than without the partial divestiture.

Suggested Citation

  • Foros, Øystein & Kind, Hans Jarle & Shaffer, Greg, 2010. "Mergers and Partial Ownership," Discussion Paper Series in Economics 1/2010, Norwegian School of Economics, Department of Economics.
    • Handle: RePEc:hhs:nhheco:2010_001
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    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media

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