The Equal Opportunity Rule in Transfer of Control: A Contractual Model

Transcription

1 Th Equal Oppotunity Rul in Tansf of Contol: Contactual Modl Hubt D La Busli To cit this vsion: Hubt D La Busli. Th Equal Oppotunity Rul in Tansf of Contol: Contactual Modl. Gman Law and Economic ssociation, Dc 00, Wisbadn, Gmany. <halshs > HL Id: halshs Submittd on 7 Oct 0 HL is a multi-disciplinay opn accss achiv fo th dposit and dissmination of scintific sach documnts, whth thy a publishd o not. Th documnts may com fom tachin and sach institutions in Fanc o aboad, o fom public o pivat sach cnts. L achiv ouvt pluidisciplinai HL, st dstiné au dépôt t à la diffusion d documnts scintifiqus d nivau chch, publiés ou non, émanant ds établissmnts d nsinmnt t d chch fançais ou étans, ds laboatois publics ou pivés.

2 Th Equal Oppotunity Rul in Tansf of Contol: Contactual Modl Hubt d La Busli Pofsso of Financ Univsity Pais-Dauphin * bstact: Th qual oppotunity ul is sn as potctin invstos in th vnt of a tansf of contol. In od to btt analyz th consqunc of such a ul, w nd to account fo th infomation asymmty that ists btwn nw contollin shaholds and outsid invstos with pivat bnfits. Both patis nd to dsin a nw implicit contact to sha th fim s ownship. Th fist on ss to contol th fim; th oth as to stand as mino invstos. Usin a sinalin modl, w show that th nw contollin shahold issus sinals to outsid shaholds to dliv pivat infomation on th fim s futu conomic tun and his pivat at of appopiation. W hihliht th fact that ownship is a ood sinal: th hih th sha of capital of th contollin shahold, th btt th pospcts fo futu conomic tun, as pcivd by outsids. noth sinal sults fom th pmium mbddd in th acquisition pic, which also ivs infomation on th futu conomic pospcts of th fim. In a contollin ownship systm, th qual oppotunity ul modifis th lativ bhavios of contollin and outsid shaholds. Th quality of infomation dtioats dspit th fact that th disciplin may b ston. Kywod: Equal oppotunity ul, tansf of contol, taov, contollin shahold, invsto potction, sinalin quilibium, pivat bnfits JEL: G3 / G34 / G38 9/09/ 00 * DRM-Financ, Plac du Mal d Latt 756 Pais, mail : hlb@dauphin.f W than discussants at th 009 Bst FFI mtin and th 009 Milano EFM mtin. P. Si should b paticulaly mntiond fo his hlp in a fist vsion of th pap.

3 Th Equal Oppotunity Rul in Tansf of Contol: Contactual Modl Intoduction. Tansfs of contol a aimd at disciplinin a fim s manamnt and impovin its pfomanc. Th qual oppotunity ul EOR is sn as potctin invstos in th vnt of a tansf of contol. Th basic qustion is how ths two poccupations combin thmslvs. Whatv th pocdu o th fom of tansf public tnd off o pivat bloc tad, a nw contollin shahold substituts fo an old on. s th thid paty, outsid invstos fac a nw conomic stoy and th fim in which thy had pviously invstd bcoms anoth conomic pojct. In od to dvlop potction fo outsid invstos in such a situation, Euopan countis hav intoducd lal povisions such as th qual oppotunity ul o a mandatoy bid pic mchanism. Both sult in a put option, allowin invstos to it at th sam sllin pic as th paid acquisition pic. Ths uls modify th quilibium in th allocation of contol. Fo instanc, with th mandatoy bid ul, th buy of a contol bloc may civ an unnown and la sta of capital fom th tat fim. This mas th buy s choic diffnt fom situations of unconstaind acquisition of contol. This qustion combins with th fact that th initially acquid bloc may b diffnt fom th sta of capital dsid by th nw contoll.. Th EOR ul has paticula impotanc in th Euopan contt wh fim s ownship is oftn concntatd Blof and Buat, 003; Gon t al., 005. Bsid th mchanisms usd fo it, th tansf of contol should f to concntatd/dilutd ownship systms Buat t al., 000. Th psnc of a contollin shahold is associatd with potntial oppotunistic bhavio towads minoity o outsid shaholds. Ths outsid

4 shaholds suff popiation of pivat bnfits fom contollin shaholds. lthouh a la numb of standad company law tchniqus ist to solv conflicts btwn th contollin shahold and minoity shaholds, th qual oppotunity ul is a y povision of copoat ovnanc. In contast to th blochold systm, th dispsd shahold systm is almost unaffctd by th intoduction of th mandatoy bid ul. Th consquncs of th quimnt to ma an unconditional public tnd off a lss impotant than in a situation of mo concntatd ownship bcaus of th absnc of pivat bnfits. Within an qual oppotunity ul famwo, whn th taov is initiatd th outsid shaholds hav to choos btwn pin thi shas and sllin thm at an acquisition pic that is always abov th mat pic. Why, in an appantly iational way, do outsid shaholds, who may bnfit fom a pic uaant, not systmatically sll thi shas? lthouh ta asons may plain it, many invstos will fus to accpt an opn unconditional bid. This puzzly qustion has not bn tnsivly analyzd in th litatu. Thfo, th valuation of th fim dvlops in a joint conomic valuation famwo btwn th nw ulin shaholds and th outsid invstos. Th poblm is mad compl bcaus outsid invstos a not passiv and will act to optimiz th pcnta of shas thy sll bac to th initiato at th acquisition pic. This can b analyzd as an implicit contact miin ancy poblms of futu pivat bnfits and sinalin poblms of dlivin pivat infomation. n quilibium is stablishd thouh th two y paamts of an off: th siz of th bloc of contol and th acquisition pic. In th modl psntd in this pap, both patis nd to dsin th chaactistics of an implicit contact in od to sha th fim s ownship. Thouh a sinalin pocss, outsid invstos will intat an pctd lvl of futu pivat bnfits into thi valuation schdul. 3

5 W show that nw contollin shahold issus a sinal to th outsid shaholds to dliv pivat infomation on two y vaiabls: th fim s futu conomic tun and th at of pivat appopiation. s in th Lland and Pyl 977 famwo, w show that ownship is a ood sinal: th hih th sha of capital hld by th contollin shahold, th btt th pospcts of futu conomic tun as pcivd by outsids. Moov, a hih capital sta undlins a dclin in th appopiation at of pivat bnfits. noth sinalin ffct sults fom th pmium mbddd in th acquisition pic: th futu pofitability of th tat und th buy s ownship is incasin in th acquisition pic. Th at of buy s popiation of futu bnfits also appas to th invstos to b dcasin in th sha th buy acquis with a 00% ownship th is no nd to popiat. Th buy maimizs his tun by his choic of th acquisition pic and his sha of th tat s capital. In an EOR contt, w hihliht that th buy tas into account th infncs th outsid shaholds daw fom his choics. Ths infncs a not tan into account with no EOR uls. Th sttin of EOR ul nfocs a constaint bcaus th buy is no lon compltly f to st th sha of capital h wants to puchas: th invstos can foc that sha up by tndin thi stocs to th buy. Th sttin of an EOR ul will spcifically daw two consquncs i It initiats a slf limitation mchanism in futu popiation. Th valu of outsid invsto s shas is dcasin in th amount of popiation th invstos pdicts to na in. Sinc th at of popiation is dcasin in th sha th buy acquis, h is ncouad to ta a la sta. Th EOR aats this pocss by ivin th invstos an it option at th puchas pic. Th buy can b focd to incas his sta involuntaily. Th buy s bst spons, sinc h dos not want to buy th nti fim, is to duc th at of bnfits appopiation. ii Th bid pic and th puchasd sha of th tat company as sinals a low quality sinals 4

6 and convy lss infomation to th mat aft th EOR: th buy s ability to sinal is ducd by th onous constaint inducd by th EOR. Moov, w also plain why th it option may b patially usd by ational outsid invstos in an EOR systm. s a sult, th lal nvionmnt appas impotant bcaus it modifis and impovs th quilibium contact locus and th valu of th fim in compaison with th absnc of a pic uaant mchanism. This pap is dividd into th pats. viw of th litatu is psntd in th fist sction. Sction psnts an analysis of infomation asymmtis, futu pivat bnfits and pctd conomic tun in a sinalin quilibium modl, which intoducs outsid shahold choics. conclusion follows.. Rviw of th Litatu Th possibility and conditions of tansfs of contol hav bn tnsivly analyzd in th acadmic litatu. In a wll-nown pap, Gossman and Hat 980 showd that tnd offs a a bcaus an infomd sll will as fo a pic at last quivalnt to th futu valu of th fim und a nw manamnt. Th only possibility of stimulatin buys is th appopiation of a nt ladin to th off of a low public off pic. Subsquntly, if taov bids occu, it will b bcaus th ulation contt allows th contollin buy to appopiat dictly all o pat of th valu of minoity shaholds ihts. Hishlif and Titman 988 analyzd th impact of pvious shaholdin by th buy, o tohold. His walth will incas du to th incas in valu of th shas h hld bfo th taov bid, vn if h alizs no ain on th shas bouht duin th pocss of acquisition. Bbchu 989 considd th main hypothsis mad by Gossman and Hat pdictin that th only succssful taov bids a thos in which th futu ains can b dtmind with ctainty. In fact, th autho shows that a bid can b succssful only if it is an unconditional off. Th 5

7 ason fo such taov bids is that ach individual shahold wants his shas to b bouht. Thfo, an unconditional tnd off can b succssful bcaus of its possibility of failu. Just li Banoli and Lipman 988, Bbchu 989 showd that, vn without any pivat appopiation by th buy, th buy initiats a taov bid if h is abl to incas th valu of th fim. Li Gossman and Hat, Bbchu mphasizs th impotanc of th incntiv sultin fom th ains in appopiation obtaind by th buy. Intoducin copoat ovnanc uls may affct th wlfa and th fficincy of copoat contol and mat disciplin Davis and Hopt, 004; Gon t al., 005. Ths uls may discoua a taov bid, as wll as possibly discouain th cunt blocholds fom accptin an off. Consquntly, th qual oppotunity pincipl is an additional bai to a wll-functionin mat fo copoat contol in a blochold-basd ovnanc im. Intoducin an qual oppotunity/mandatoy bid ul has som implications fo th ownship and contol stuctu in a blochold systm. Fist, it mas th blochold systm lss fficint, as it ducs th occunc of tad in contollin blocs, which is th dominant way to tansf contol Buat t al., 998; Kö and Rnnboo, 005. Consquntly, contol may main in th hands of infficint blocholds. Scond, it sticts th siz of th sta a blochold is allowd to acqui without tiin a tnd off. Thid, th hih th bid pic in a mandatoy tnd off, th low th acqui s incntiv to ma a bid, so ownship and contol in th blochold systm a lily to main concntatd. In a contollin shahold systm, th possibility of th appopiation/allocation of th conomic nt cash flow within oups of fims is at th hat of th qustion insofa as taov o bloc tad will dvlop in oups of fims Faccio t al., 003. Divsion by th holdin company o by th contollin shahold is th fist vntuality. Sttin intnal tansf pics o imposin lobal costs of stuctu a wll-nown ways to allocat th cash 6

8 flow within oups. Evn if th subsidiay is not conomically intatd, diffnt ways still ist fo tunnlin pat of th nw cash flow that has bn natd followin a oanization of th acquid company. Without oin as fa as divsion of th istin cash flow and its lal dans, th allocation within a oup of th nw ta cash flow is litimat. Taovs can nat ains in syny within a oup o btwn fims. Thfo, duction in costs, conomis of scal, hih mat pow can bnfit th whol oup whn fims a conomically intatd. ttibutin th nti ain to th last bouht fim is li statin that it is th last dop of wat that mas th lass ovflow. It is not supisin that th ta cash flow, which is th consqunc of th btt fficincy of th whol oup, is not totally allocatd to th contolld fim. W will us th tms appopiation at o pivat bnfits to dscib th pat of th conomic cash flow that is dictly lvid by th contollin shahold. Outsid invstos will thn valu th fim considin only th nt potd cash flow aft appopiation. In th contollin shahold systm, th dominant ancy conflict that dvlops is th on with outsid invstos. Pivat bnfits a lvid by th contollin shahold Shlif and ishny, 986, o La Pota, t al., 999. Th poblm is stimatin pivat bnfits that a concald fom outsid invstos and that oftn sult fom nativ manamnt dcisions not to do somthin ath than doin it. This lads Hofsttt 006 to as why not ma pivat bnfits an plicit pat of th copoat contact. n instantanous masu of pivat bnfits is mad whn a chan in ownship implis a tansf of contol to a nw buy. Th tansaction pic loically intats th nt of contol. This is th discountd valu of th contollin shahold s pivat bnfits. Ths pivat bnfits should b considd as an ancy vaiabl in th contollin-outsid invstos lationship. In a contollin ownship 7

9 systm, som fficint lvl of pivat bnfits balancin monitoin costs may ist Buat t al., 000. Many mpiical studis hav tid to stimat th valu of contol in th acquisition pic by spaatin th pat that cosponds to pivat bnfits. Baclay and Holdnss 989, in aminin taovs in th US, pointd out that la blocholds possss abnomally la bnfits. Th acquisition pic of a sha in a bloc tad compad with its valu in th mat bfo th tansaction dat is an appoimat stimat of th pivat bnfits. Considin 63 bloc tads of NYSE listd fims, thy outlind a positiv pmium in 80% of th tansfs of contol. Th ava pmium was 0% and psntd 3% of th lobal tansaction pic. In a lat mpiical study, Baclay t al. 99 analyzd 06 bloc acquisitions. Th ava siz of th bloc of shas psntd 7% of th capital. In most cass 90%, a nw contollin buy placd th incumbnt dominant stochold. In Fanc, Schatt and Roy 004 considd 80 bloc tads duin th piod Th siz of th bloc psntd an ava sta of 60.6% of capital. total of 63 tads involvd mo than 50% of th vot ihts. In 7 opations, th initiato was alady in th fim s capital with a tohold paticipation of %. Thy wantd to obtain contol by incasin thi sta with an ava bloc of 43.8%, sultin in a contollin ownship aft th tansaction of 66% of th capital. In a majoity bloc tad tansaction, Fnch and mo lobally Euopan ulation imposs a mandatoy bid taov aimd at minoity shaholds. Th authos showd that, duin th piod studid, th ava sta of capital sold by outsid invstos in that famwo psntd an ava sta of 5.7% of capital. In th nd, th initiato obtaind an ava 90.8% of capital of th tat fims. It should b notd that th authos found that th pic uaant mchanism attactd only th-quats of outsid shaholds, who will only patially us th it oppotunity. 8

10 Only a fw studis a dvotd to th tchnical diffnc btwn th two pocdus of bloc tad and public tnd off within a contt of pivat bnfits. Tansf of contol can b achivd by bloc tad acquisitions o by public taov bids. Bolton and von Thaddn 998 au that th advanta of monitoin by blocholds is that it tas plac on an onoin basis. Howv, a bloc tad mans that a situation of contol o dominant influnc p-ists. noth tchniqu is a tnd off in a dilutd mat famwo. Holmn and Novoozhin 007 analyzd mpiically th diffnc btwn tnd offs and bloc tad in th Swdish mat. Thi basic hypothsis is that a tnd off indicats a la futu pfomanc impovmnt and solvs th Gossman and Hat 980 f id poblm in convincin outsid invstos to subscib. Thfo, in th cas of la ownship, a contollin shahold will b inclind to us a public tnd off. Buat, Gomb and Pannuzi 000 consid that th nw dominant shahold will impov tat fim pfomanc whatv th mod of tansf. Howv, a bloc tad lads to a lss concntatd ownship in a no qual oppotunity ul contt. Thfo, this suppots th incntiv to continu to tact pivat bnfits. Convsly, public tnd will lad to la ownship of th dominant shahold and will thn lssn th appopiation of pivat bnfits. Considin Swdish fims ov th piod , Holmn, t al. 007 confimd that th choic of tansf mod dpnds on th siz of pivat bnfits. Bloc tads tnd offs a pivild whn th contollin shahold has a small la sta and whn pivat bnfits a la small. Howv, this mpiical study did not sm to ta into account th fact that th mandatoy bid ul had bn intoducd in Swdn in 999 with a thshold of 40% and appantly bloc tads a not submittd to th qual oppotunity mchanism, ivin outsid invstos an it option at th tad pic. Howv, th two pocdus a financially idntical fo outsid invstos. La Busli and Dffains 004 considd th two mat tchniqus of 9

11 simplifid tnd offs OP simplifié and mat pic uaant aft a bloc tad Gaanti d cous usd in th Fnch mat to implmnt th qual oppotunity ul onc th tansf of contol is nown. Only btwn half and th-quats of th outsid invstos will cis thi in-th-mony it option. This illustats th mpiical impotanc of th puzzl lind with th qual oppotunity ul offd to outsid invstos. La Busli and Dffains 004 dvlopd a continnt claim analysis of th qual tatmnt iht ivn to outsid shaholds. Th analysis of th fficincy of th tansf of contol is mad by compain th situation with and without an qual oppotunity ul. n fficint tansf of contol is an opation that cats nw conomic valu. Dos th qual oppotunity ul, which bnfits outsid shaholds, hlp o hut th fficint allocation of contol? In compaison with a systm with no spcific outsid invsto potction, which on wos btt? Bbchu 994, 999 shows that, in a pu mat systm with no potctiv ulation, th systm fficintly potcts outsid shaholds und two conditions: i no pivat bnfits bfo o aft th tansf of contol, and ii th asymmty of infomation at th incption of th tansaction disappas with an accountin systm that fficintly pots th tu conomic pofit of th fim. Buat and Pannunzi 004 intoducd into this famwo th futu pivat bnfits lvid by th nw contollin shahold. Thy show that th condition fo a tansf of contol und th EOR is mo dmandin than th simpl conomic fficincy constaint. It lads to th ulin out of som fficint tansfs of contol. Th EOR systm allocats som pat of th ain nsuin fom th tansf of contol to minoity shaholds. Moov, it potcts thm fom infficint tansfs of contol. Evn if nw contollin blocholds continu to appopiat pivatly a popotion of th bnfits, thy must off a hih pic to th fom contollin shahold in od to satisfy th constaint imposd by th EOR. Th abov analysis is dvlopd fom a maco bhavioal point of viw. It is opn to sval citicisms: 0

12 - Th siz of th contol bloc is supposdly fid. This is considd as an ndonous vaiabl. No flibility is offd. Th nw contollin shahold may aim at an optimal pcnta paticipation sta, which is not th sam as th siz of th bloc tad. - W nd to plo futh th asymmty of infomation btwn th buy and th sll. Dos th nw contollin blochold accuatly stimat pivat bnfits lvid by th pvious on? - ccodin to th analysis of Bbchu 994 o Buat and Panunzi 004, th EOR it option is supposdly totally cisd by minoity shaholds. Th abov analysis dos not plain th puzzl of a patial cis of this option. How to justify this? - Lind with th abov point, th will main som minoity shaholds aft th taov. Thy now ationally that thy will b posd to a nw unctain hazad: th futu popiation of pivat bnfits by th nw contollin shahold. In a famwo of ants ational anticipations, thi choics will ant ta this is into account. Th abov analysis focuss on th calculus of th buys and slls of contol. Nothin is said about th bhavio of ational cunt and futu minoity shaholds. Infomation symmtis, Futu Pivat Bnfits and Economic Rtun in a Sinalin Equilibium Modl - Sttin of th modl This pap will analyz th qual oppotunity ul fo outsid shaholds in a nonhostil taov contt, which is th most usual on ncountd in th financial mats. Duin th mainin tim of th off, outsid shaholds ma thi choics by considin that th tnd off has bn a succss. Similaly, thy now that th contollin bloc has bn bouht. Th shahold nows that h has to consid diffnt valu fo th nwly

13 contolld fim. Thy loo fowad to th futu unctain pofitability of th nwly contolld fim. Ths situations a fqunt, cospondin to findly taov bids wh succss is nown o quasi-ctain fom th binnin. This is also th cas fo many aid bids. y oftn, institutional invstos ma public thi dcision to accpt th public off. Thfo, it is possibl to now th volution of th pat of th capital that accpts th bid. With a aid s bid, outsid shaholds bnfit fom a pic uaant whn th succss is apidly nown, which mans bfo th nd of th pocdu. It is only if th off is hostil and unctain up to th nd of th pocdu that shaholds do not now whth thy will bnfit fom a pic uaant mchanism. Such situations a uncommon. This analysis consids mandatoy bid pic mchanisms fo outsid shaholds who a awa that contol of th fim has just movd towad a nw contollin shahold. Outsid shaholds now that th off is succssful and that thy bnfit fom an qual oppotunity ul fo on of th followin two asons: i th is an plicit pic uaant o ii th is an implicit pic uaant bcaus th succss of th tnd off is quasi-ctain and is a mandatoy unconditional 00% quity acquisition. Und such conditions, th patial us of th it pic oppotunity appas as th sult of a ational conomic calculation, which nds to b analyzd. Outsid invstos will qustion thi optimal ownship accodin to th futu conomic pofitability of th fim o to th appopiation policy of th nw contollin blochold. Looin at sinals is a way to ach ownship quilibium. In od to analyz btt th consquncs of th qual oppotunity ul, w nd to ta into account th infomation asymmty istin btwn th nw contollin shaholds and outsid invstos. Th outsid invstos want to now mo about th futu pospcts of th fim.

14 Pivat bnfits hav to b considd as impotant in ou famwo. Thy a not only Euopan o siatic fatus. s idntifid by Bbchu 999, acquisition pmium is a way to asss th nt of contol of th itin contollin shahold and to buy it out. Th mat fo th tansf of contol is also a mat in which to chan pivat bnfits. Taditionally, th acquisition pic is psntd as th paymnt fo lost bnfits to th itin contollin shahold. On thotical ounds, taovs would b a without pivat bnfits. Intoducin a mandatoy quality of oppotunity ivs outsid invstos accss to that pic. Nvthlss, looin at th past is not th y point in a dal. Outsid invstos with an it option at th acquisition pic a facin a doubl qustion: What will b th futu conomic tun of th nwly contolld fim and what will b th futu pivat bnfits lvid by th nw contollin shaholds? Invstos hav to b considd as is avs bcaus th futu conomic tun is diffnt fom th old on and is unctain. W nd to plain th patial us of th it oppotunity ivn to outsid shaholds in an EOR systm. W acnowld that th acqui will not buy 00% of th capital of th tat fim as assumd in th Bbchu o Buat and Panunzi famwos. Th final sta in th capital should b considd as an ndonous vaiabl sultin fom th minoity shaholds choic. Howv this choic is also conditiond by th acqui, who may adapt his off and his infomation to aim at an optimal paticipation sta at th nd of th taov. Th ap in infomation btwn th nw contollin shahold, who nows th futu pospcts of th fim btt than do outsid shaholds who may opt out accodin to th infomation thy a ivn, is cucial. It plains th post shain of capital of th tat fim aft th taov. In this sction, w dvlop a joint quilibium modl within a two-paty sinalin am basd on ant pctations. Th nw contollin shahold will aim at an optimal paticipation sta in th tat fim. H uss sinalin vaiabls to influnc th 3

15 outsid invstos and, byond thm, th mat. Followin Lland and Pyl 977, w now that th faction of capital tatd by th contollin invsto is a sound sinal of th pofitability of th invstmnt pojcts of th fim. Minoity shaholds will us th it oppotunity followin th infomation thy inf fom th sinal about th futu pospcts of th fim und its nw manamnt. situation of asymmty of infomation ists bcaus outsid invstos do not now th tu futu conomic pofitability of th fim aft taov and thy ino th amount of pivat bnfits lvid by th nw contoll. joint sinalin modl hihlihts th impotanc of infomation and will focus on th istnc of som auto limitation mchanisms. W conjctu that ths mchanisms a spcific to th EOR systm W us th followin vaiabls: : bid off pic 0 : initial contollin bloc bouht fom th fom contollin shahold : pcnta of shas acquid by th nw contoll whn th tansf of contol is compltd t: appopiation at of pivat bnfits S : valu of th fim bfo th taov : invstd conomic capital B S : valu of th pivat bnfits of th sllin contollin shahold : is adjustd cost of capital Th valu of th fim bfo th tansf of contol S is th sum of th walth of th incumbnt contollin shahold, W S, and th outsid invstos walth, W O. Bfo th dal, it is qual to th invstd conomic capital multiplid by th conomic tun on invstd 4

16 3 capital, S. This tun is an unctain vaiabl focastd fom th fom contollin shahold s static choics. W idntify t S with th focast appopiation at lvid by th fom blochold : S S. t S. ts WS WO S BS BS 443 public mat valu pivat bnfits Th initiato loos fo contol thouh a tat paticipation sta of by poposin a bid pic. This pic intats th buy out of th sllin shahold s pivat bnfits. It should b abov th minimum condition fo th pvious contollin shahold to accpt to sll. In a contt without an EOR ul, th nw shahold buys an initial sta of capital 0. Th incntiv fo th incumbnt blochold to sll is:.. 0 B B 0 S S S This condition mans that th pic paid to th incumbnt contollin shahold covs at last his sha of th public valu of th fim and his pivat bnfits. It is supposd satisfid and th tansf of contol occus. Th loic of sinalin and th implicit contact btwn th nw contollin shahold and outsid invstos is only onously constaind by valus of and satisfyin. Th tat sta of capital of th nw contollin shahold and th acquisition pic may thus b ndonously st in th quilibium modl. W intoduc λ as th incas of valu captud by th pvious contollin shahold so that h is paid abov th minimum bindin pic includin his fom pivat bnfits. Fom : This fomula appantly mans that bnfits taction ntails no spcific costs bon by th contollin shahold. Ths costs a in a tad-off with th amount of pivat bnfits. Thy a a function of th invsto s sta of capital Buat t al., 000. Without any loss of nality, w assum thm to b zo in ou compaison btwn th without and with EOR contt. mo complt modl intoducin mainally incasin spcific costs bon by th contollin shahold lads to simila sults. It is availabl to th autho. W coniz that, looin at, th absnc of spcific cost favous a maimum appopiation bhaviou by th contollin blochold. 5

17 [ B B ]. λ S S S Th nw contollin shahold has to buy out th pvious own s pivat bnfits. Th incntiv condition holds fo any λ>. This paamt psss th pat of futu pofits of th fim captud by th pvious contollin shahold. In an EOR contt, th nw contollin shahold tnds that pic to any oth shaholds. Th sttin of th initial tansf of contol, paticulaly th pic, is lft undfind and dpnds on th f vaiabl λ.. Th only condition fo a sinalin quilibium btwn th nw contollin shahold and th outsid invstos is. Paticulaly, th acqui has patial disction on and th tatd paticipation sta is not st qual to 0 bcaus th contol chand. Th contol pmium which is paid ov th pvious public mat valu of th fim is: λ S BS S BS Bs 443 λ 4 Mat valu Contol pmium Fo λ, th minimum incntiv condition of th sll is just satisfid and if th nw contollin shahold will minimiz th contol pmium which is thn qual to B s. Th minimum accptabl valu fo th acquisition pic is thn s, th lobal conomic valu bfo th taov. Th walth of th nw contollin shahold will dpnd on th ava futu conomic tun on invstd capital nsuin fom th nw manamnt, *, and fom th futu appopiation at t *. It also dpnds on his quity sta *. Th valu of is pivat infomation of th nw contollin shahold. Th contollin shahold bas som spcific ancy costs. Thy should b subtactd fom th pivat bnfits. Without any loss of nality, ou modl assums that thss costs a null. complt vsion intoducin costs mainally incasin with bnfits taction lads to simila conclusions. S footnot. 6

18 ~ W * ~ * *. t. t 5. Th nw contollin shahold nows th ava valu but th conomic pofitability is posd to an o tm ~ such that E0. W assum th conomic unctainty to b nomal with standad dviation. Contollin and outsid invstos sha th sam infomation on. Outsid invstos mainin in th fim do not now th tu valu t *. Howv, thy now that t * is low than, which mans that no dfault is considd in th sttin. Th nw contollin blochold loos fo appopiatin pivat bnfits in a lon-tm infinit pspctiv and dos not want th fim to o banupt. Th paamt t * is st by th nw blochold. Th outsid shaholds will focast th futu valus of th conomic pofitability and of th appopiation at and will civ infomation fom th contollin shahold. W dfin thi focast as functions of paamts of th dlivd infomation,. and t.. Th valu of th outsid invstos sta in th fim is: ~ W 0. ~ t.. 6 Outsid shaholds mainin aft th taov now that pivat appopiation ists and that th at t is a function of and of. Ths two sinals a idntifid by th mat and a intatd into th valuation by mat paticipants. Th mat valuation schm of th fim by outsid shaholds dpnds on th pcivd futu conomic tun and popiation. Th mat valu is only st by outsid invstos, who will consid two sinals in od to build thi focast. Th acqui chooss two valus as sinals and outsid invstos st thi,, t,. Th futu conomic tun is unctain and psnts fom th outsid invstos point of viw a hazad du to conomic nois such that E0. 7

19 Th acqui will choos th valus of and, which will maimiz his pctd utility of walth. H nows that his optimal choic will induc a mat valuation basd on implicit valus fo and t : * * * * * *, t, t * * 7a joint quilibium schdul Lland and Pyl, 977 will imply that th valuation is basd on a fai appaisal by th mat of th tu valus of and t. This valuation is don usin th public sinal valus and. Rvsin th quations at mat quilibium ivs: * [*.,.,*.,.] t [*.,.,*.,.] t * 7b If, fo instanc, th valu, usd by th outsid invstos and th mat w at than th tu valu of only nown by th nw contollin shahold, th stoc mat valu would b ov-valud and, in th nd, outsid invstos would civ lss than th quid pctd is adjustd tun on th mat Lland and Pyl, 977, p.374. In an infinit constant cash-flow valuation, at quilibium, th numato of th mat public valu * * is th qualizd nt conomic tun:. t. t. Th valuation of th fim in th mat is th sam considd by ach catoy of shahold in od to optimiz thi walth. B - Without EOR In a systm without th qual oppotunity ul, w maimiz th contollin shahold s nt walth. Th istnc of conomic unctainty nhancs th invsto s is avsion. W intoduc a utility function of walth U. and consid th pctd utility of walth. Usin quation 5 th nt walth of th nw contollin shahold is with. and t. st at thi optimum: 8

20 ~ W.. ~ t.. t. 8. In od to optimiz, w st th fist divativ to zo with spct to th two sinals. Divin vsus th acquisition pic, w obtain: de[ U W ]..... d dt dt E U ' W d d d d Equivalntly:. nd: d... d [ ' W ] dt.. E U. d E[ U ' W ] > 0 d. d dt.. d > 0 0 If, quation 0 simplifis and w t d./d/. This pssion is positiv: if th acqui poposs a hih acquisition pic h issus a positiv sinal on th futu conomic tun of th tat fim. Fom that bindin limit, quation 0 simplifis bcaus dt./d should b null in od to b qual to /, whatv th valu of. s a consqunc, th popiation at focastd by outsid invstos dos not dpnd on th valu of th acquisition pic. Economically, considd fom th nw contollin shahold s point of viw, th acquisition pic pays fo th past pivat bnfits and is a sinal fo th futu conomic tun; it dos not dpnd on his futu pivat popiation. If w st th acquisition pic as qual to th minimum accptabl valu s fo a tansf of contol to occu, w t: S, with S bin th conomic pofitability of th S. fim und th fom contollin blochold s manamnt. s a sult, th pvious shahold will civ only th mat valu bfo th tansf and with a contol pmium qual to th fom pivat bnfits. W stand at th limit condition wh λ in quations 3. 9

21 In that vntuality, th nw contollin shahold dos not issu any sinal about th futu conomic tun. Th pic just satisfis th tansf condition and nothin mo is ivn bcaus th futu conomic tun of th fim is th sam as th conomic tun considd bfo th tansf of contol: S. W now intat th stictd iht hand sid of 0, d /.d, ov th two vaiabls and and us th pvious limit condition S fo s. W t a lation wh th futu conomic tun of th fim aft a tansf of contol S is a lina fom of th acquisition pmium.. This last vaiabl is th acquisition pmium. 3 It is dfind as th diffnc btwn th acquisition pic and th minimum acquisition pic to initiat a tansf, which is qual to th fom conomic valu of th fim s Fiu :.. S S S -. S / Fiu : Rlationship btwn th pctd conomic tun and th acquisition pmium λ 3 0 Usin 4 w t th acquisition pmium: S λ S BS BS 0 0

22 Th lationship,, incass linaly with th acquisition pmium. Th hih th acquisition pic, th hih th pctd futu conomic tun as pcivd by outsid shaholds. Moov, th acquisition pic is a uslss pic of infomation to anticipat th futu popiation at of th nw contollin shahold. Outsid invstos now that th acquisition pic is a pu sinal in th sns that it will only val futu conomic pofitability aft a tansf of contol. ivs: Th acqui s optimization with ad to th ownship sta in th tat fim ~ de[ U W ] d ~ E U ' W.. ~ d. d dt. d dt. d. t.. 0 In th pctd valu, w idntify a poduct bcaus W and a andom vaiabls. It lads to a covaianc tm 4 : E U d. dt.. d d ~ ~ [ '' W ].cov W,. ~ ~ E[ U ' W ]. t. Intoducin 8 and manipulatin th covaianc tm ivs: ~. cov,. ~ W cov. ~,. ~ Usin µ as a positiv quivalnt is avsion cofficint, w stat that E[U.]/E[U.] -/µ... t. d. dt d d µ 4 Rmmbin that fo nomal vaiabls: cov f, y f '.cov, y

23 In od to solv th diffntial quation 3 w posit an additional hypothsis on th lationship btwn t and. W assum a nativ lina lationship. Th ida is that th contollin shahold is lss incitd to popiat as h ains mo capital ownship s Lmma, Buat t al., 998, 000. t th limit, if h owns 00% of th quity h is indiffnt to a choic btwn pivat and public bnfits 5. W st: t. 4 0 Th appopiation lationship 4 is only dfind fo valus of ownship hih than th thshold lvl min to ta ov contol of th fim and fo valus low than 00%. Fo 00%, th appopiation at is zo, so: 0 >0 s Fiu. t min Fiu : Rlationship btwn appopiation at and ownship sta of capital of th contollin blochold 5 ssumin no diffnc in ta tatmnt.

24 3 pplyin 4 to 3 ivs: d d µ Equivalnt to: d d µ 5 Th iht hand sid of 5 is positiv with st btwn 0 and. Thfo, th lft hand sid is also positiv. Bcaus of./ bin positiv, w t an unnown sin of th divativ btwn an incas in th ownship sta of th contollin blochold and th volution of th futu conomic tun of th tat fim. Th solution of th diffntial quation 5 is s nn: µ c Equation 6 dfins a family of cuvs accodin th valus of th intation constant c s Fiu 3. Rcallin that th divativ should b positiv in od to dliv a sound sinal of incasin pofitability with th sta in capital blonin to th contollin shahold, th sufficint followin condition nds to b satisfid: 0 > µ with c nativ. Th last pat of th quation is not bindin, sinc c can ta any valu. Th fist pat of th iht hand sid of quation 6 imposs an upsid limit on th appopiation atio.

25 . //- J M I I 00% J M I Fiu 3: Situations of th nw contollin shahold Fo th limit valu, quation 6 ivs:., µ c. This cas cosponds to a total ownship of th fim by th acqui. It dtmins th locus of point in Fiu 3 dfind by th intsction of th family of cuvs 6 and th vtical lin fom 00%. mon all th quilibium cuvs, th cuv MM cuts acoss that vtical lin at point M. Moov, w now that if th ownship sta is 00%, th contollin shahold will not popiat. Th valu of th fim und his total contol and ownship is * / fo th nw shahold. His quid futu tun can b calculatd usin th acquisition pic as th invstmnt cost. His tun is obtaind fom th atio of th fim s valus aft taov dividd by th acquisition pic minus : * /. Substitutin, in,, w dfin th point M and th cuv MM by sttin th 4

26 constant valu qual to: * /. c 6. s a sult, th acqui s µ * / announcd futu tun is ffctivly:,, and th tun on his invstmnt is qual to th tun of th conomic pojct. Th MM cuv is th bst quilibium locus fo th contollin shahold. If, fo instanc, a 00% shahold wants to sll a mainal faction of capital, h is btt off th bcaus, by sllin at an announcd conomic pofitability M -ε, h will sll at a hih pic than if h stays on a cuv blow MM. ccodin to diffnt valus of c, w can st, fo * / instanc, c <. W thn dfin a point I, which ivs µ,.<m. Th acqui may launch a total acquisition with a disclosd.<m ; h will civ a tun on his invstmnt low than M. If h wants to disclos a futu conomic tun low than M, h is btt off stayin on th quilibium cuv MM, holdin an quity sta I and lttin a sta of capital - I o to outsid shaholds. Evn if th contollin blochold issus a wa futu conomic pofitability by sttin.<m, th pivat bnfits h appopiats will account fo th diffnc. If th nw contollin shahold pivils an quilibium cuv abov MM, h may not announc conomic tuns hih than M. If h stays at point J, h announcs.m, but h wants to hold only a sta of th capital. H will not find outsid invstos in th mat to buy th complmntay - pcnta, bcaus minoity shaholds will * 6 Th sufficint nativ condition on c is thfo quivalnt to <. µ Th iht hand sid of this inquality is positiv. It compas th taov pmium / and th atio of th pctd pofitability of th nw manamnt dividd by th mat is adjustd valuation at: This condition is asily satisfid cpt fo tmly la valus of *. Thfo, th lationship btwn th announcd pofitability and th ownship sta may tun nativ. 5

27 6 intat futu popiation into thi valuation. Th nw contollin shahold is thfo btt off sttin M bcaus thn h will not suff fom a discount in th mat pic of his shas sultin fom his 00% ownship. s a consqunc, th MM cuv is th only fasibl quilibium locus st fo th nw contollin shahold. Its quation is: /. * µ µ 7 Thouh th implicit pofitability as focastd by th mat, th nw blochold s sta influncs th mat valu of th fim and his lobal walth. Th nw contoll has a la st of choic in a non-eor contt. H can balanc, fo instanc, a low mat valuation du to a small contollin bloc with a hih pivat appopiation thouh lation 4. Paticulaly, th tatd sta of quity can b diffnt fom 0. If w mov to th simplifid contt of Lland and Pyl 977, wh pivat appopiation dos not ist i.. t 0 o quivalntly 0. Th ownship sta of th dominant shahold is th only sinal to outsid invstos. So, lationship 5 simplifis to:. d d µ 8 Usin 7 and sttin to zo, th solution cuv is: /. * µ µ 9

28 Fo a total ownship, w a in th sam situation as pviously discussd. Th quilibium cuvs btwn th situation with and without pivat bnfits will sha th sam quilibium point M which ivs full 00% ownship. Th quilibium cuv ZM without appopiation as in a standad dispsd ownship systm dfind by quation 9 is locatd abov th quilibium cuv MM in a situation of popiatin contollin shaholds s Fiu 4. Th quilibium cuv with appopiation as dfind by quation 7 is loically blow that without pivat bnfits. Th ap with th cuv dfind by 9 is plaind by th appopiation at, which nts nativly into th fomula 7 in th lina slop tm and in th invs tm. Usin 7, w s that d /d is stictly nativ. This mans that, fo a ivn valu of infio to, th announcd futu conomic pofitability is low in a contt of pivat appopiation. Outsid shaholds discount th sinal by a focast of pivat bnfits. Th quality of th sinal incasinly dtioats as contollin ownship falls. simila way to pss it is to say that, in od to issu a futu conomic pofitability, *, bin idntical to th on in a no pivat bnfits nvionmnt, th contollin shahold locatd on MM should hold a hih sta in capital in od to compnsat fo th suspicion of pivat bnfit and to iv mo stnth to th sinal comin fom s Fiu 4. 7

29 M * D B Z M Fiu 4: Compaison of th quilibium cuvs fo acquiin shahold in dispsd ownship and concntatd ownship C - With EOR W f now to a situation with an qual oppotunity ul. Th walth function of th acqui should includ a nw vaiabl, which is th pat of th capital bouht by th acqui as a sult of th mandatoy bid ul. ~ W ~ ~. t. t ~ 0 Th nw contollin shahold will optimiz th numb of shas bouht by outsid invstos thouh th mandatoy bid pocdu o th pic uaant mchanism st into foc duin th taov. Howv, h has to ta into account th choics of outsid invstos, who 8

30 9 want to optimiz thi paticipation in th fim, compain this with th it option antd by th EOR. Outsid shahold bhavio with EOR Th walth of outsid invstos incass with thi oppotunity to sll out shas at th acquisition pic. t W O. ~. ~ Mino invstos can act and optimiz fom thi point of viw th valu of. W fist nd to solv th outsid shaholds poblm bcaus th contollin shahold nows that th popotion of capital h should buy followin th EOR dpnds on th futu conomic tun and on th appopiation at, both of which a anticipatd by minoity shaholds thouh th publicly obsvd valus and. Sttin to zo th divativ of th pctd utility with ad to yilds: 0... ~. ~ ' ] ~ [ O O d dt d d t W U E d W de U Manipulatin: t W E U W W E U W E U t W U E d dt d d O O O O... ] ' [ ~, ]cov ' ' [ ] ~ ' [. ~.. ~ '.. 0 Rfin to EU /EU -/µ, this is quivalnt to: t d dt d d.... µ

31 30 W loo at -t a, which is th nt pofitability announcd by th contollin shahold and usd by th outsid invstos to valu thi walth in th mat. W t:.... t d t d µ µ 3 Intatin in a simila way as abov ivs: c t µ µ... 4 Th two limit conditions to b satisfid by 4 a -, manin th outsid invsto can only sll th availabl shas not initially bouht by th nw contollin blochold, and 0 fo vy hih valus of -t. Equation 4 dfins a family of dcasin cuvs as lon as th intation constant is positiv s Fiu 5. Ths cuvs hav a simpl conomic manin: if th pospct of nt futu conomic pofitability of th fim is hih, th stocs a a ood invstmnt and outsid shaholds will only us th mandatoy bid it fo a small pat of thi invstmnt. t th limit fo tmly ood pospcts of pofitability, outsid shaholds will p all thi shas. That ivs an asymptotic upwad ointd shap to th locus of thi choics.

32 .-t. j m i./ -. i j m - Fiu 5: Equilibium cuvs of outsid shaholds spcific choic of th announcd nt public pofitability - t will sult in a tun.. t. / of th invstmnt stictly qual to - t. Thfo. t.. This dfins a hoizontal lin t... in Fiu 5. Th outsid shahold will not consid any nt tun blow that lin. Th vs would man that th outsid invstos accpt that thy will hold shas in th fim with a low valu ath than ta th oppotunity to sll and it th fim. Th ists an intcpt point m of that minimum hoizontal lin with on of th cuvs dfind by quation 4 locatd at th spcific valu -. That point will idntify th optimal cuv mm fo th choics of mino invstos. That cuv is thi only st of ational choics. It allows us to dtmin th valu of th intation constant.. c. 7 Fo instanc, th cuv jj is not accptabl:. µ stayin at point j would man that outsid invstos would bin all thi shas - at 7 This is positiv fo acquisition pics such that:... > µ 3

33 th it oppotunity, sllin thm at an acquisition pic that is blow th mat valuation basd on th futu pospct of pofitability thy focast. Th quilibium locus ii is cut acoss on its downwad cuv bcaus of th floo valu imposd by th acquisition pic. It is also dominatd by th st of choics sultin fom th jj cuv abov it. Th quation of th mm cuv is:. t. µ... µ. µ 5 s an input to quation 5, outsid shaholds nd to idntify th contollin shahod s tatd sta. Situation of th nw contollin shahold Knowin th st of possibl ational choics of th outsid shahold, th contollin blochold will ty to optimiz his situation. H chooss with ad to th acquisition pic,, and th sta of capital h aims to buy on his own,. Sttin th divativ of his walth with ad to to zo: ~ de[ U W d ] ~ E U ' W d. dt. d d dt. 0 d 6 W t a diffntial quation clos to lationship 0 but intoducin plicitly th pctd shas to b bouht bac thouh th EOR in th acqui s calculus: d. dt. d d > 0 7 Th analysis w dvlopd ali adin th quilibium locus of choics nsuin fom lationship 0 also applis h. Th divativ d./d/. is still positiv. Th 3

34 istnc of an qual oppotunity mchanism dos not alt th positiv lationship btwn and th anticipatd conomic pofitability of th tat fim aft th taov. Th acquisition pmium is a simpl and dict sinal of th futu conomic tun of th fim. Th lina lation is still valid. Th divativ dt./d mains qual to zo, so th acquisition pic dos not sinal anythin about th futu appopiation at. to, w t: Tunin now to th optimization of th nw contollin shahold s walth with ad de[ U W ] E U ' W d ft som manipulation:. ~ d. d dt. d dt. d. t. 0 d. dt... d d µ. t. 8 In compaison with a situation without EOR, th cofficint of th dt./d tm is -- / ; this is low than th on in quation 3, which was -/. Fo a ivn incas in, th nw contollin shahold is divn to popiat lss. Ctis paibus, fo ivn incass of and at quilibium, dt./d is nativ. Howv, in od to compnsat, th absolut valu of th divativ dt./d will b hih with EOR than without it. t quilibium, th appopiation at t will dcas mo fo an incas in. Consquntly, th EOR systm is mo disciplinay with ad to popiation. 33

35 34 In od to solv th diffntial quation 8, w nd to add th hypothsis that dt./d is a nativ constant, which implis a lina dcasin function simila to 4 btwn t and. W t th diffntial quation vsus mmbin that is a fid paamt:.. d d µ 9 Th solution of 9 is a family of incasin cuvs: c µ 30 s pviously, w idntify a point M fo total ownship of capital:. This point is th sam as th on in th situation without EOR. Th only accptabl quilibium cuv is M EOR M, shown in Fiu 6, and is dfind by th quation: * /. µ µ 3 Fom th optimization of minoity shaholds, is ith positiv o zo. dict compaison btwn 3 and 7 shows that th M EOR M cuv in th with EOR cas is blow th MM cuv without EOR. Th diffnc of implicit conomic tun. fo a ivn st of paamts is /., which is nativ. Th systm with EOR lads to low quality infomation than in a situation without pic uaant potction. ivn sinal is mo tustwothy and is btt pcivd by outsid shaholds in a no qual oppotunity systm. Fo a ivn valu of th sinal, Th EOR ul wans th infomativ situation of outsid shaholds in a blocholdin systm. In od to balanc this wanss,

36 th contollin shahold should issu a ston o a diffnt sinal. His bhavio is modifid: if h wants to sinal a ivn lvl of futu conomic pofitability, h nds to buy o to bid fo a mo impotant ownship sta within EOR than h dos without EOR. W should obviously add that th sinald. nds to b hih than th is adjustd cost of capital,, othwis th nw contollin shahold would not b ncouad to launch th taov s Fiu 6. M 00% Z M M EOR Fiu 6: Nw contollin shahold quilibium choics with and without EOR systm Th EOR systm chans th location of th optimal choic cuv of th contollin shahold by movin it away fom th situation ZM, cospondin to th absnc of pivat bnfits. Th situation is mo compl insofa as pivat bnfits play a mo impotant ol in sttin th quilibium cuv with EOR. Th divativ o. with ad to is mo snsitiv in such a situation. Fo a ivn valu of nw conomic pofitability, th contollin shahold would own a la sta of capital, which would lad him to popiat lss. In that sns, th EOR systm lads to nhancd disciplinay pssu. t th limit, fo low valus of, th choics conv mo quicly towad th no pivat bnfits cas. 35

37 3 Joint quilibium sttin Th final quilibium btwn th two actin patis dpnds on th choic of st by outsid shaholds. Fo ths outsid shaholds, th quilibium is a function of th nt conomic pofitability of th fim aft subtaction of pivat bnfits. Th final sttin by th contollin shahold will intat th numb of shas h will buy followin th EOR pocdu. m M a m Z M EOR 0 00% Fiu 7: Equilibium choic of contollin shahold and outsid invstos Th acqui who buys a contol bloc 0 may thin that it is nouh fo him to locat on his quilibium cuv M EOR M at point a s fiu 7 and to issu th sinal, which cosponds to a pofitability * optimal fo him. Rcivin that infomation on th bloc siz, th optimal ownship of mino invstos is locatd on th cuv mm at th sam vtical lvl as that of point a. Th implid * is so wa that all outsid invstos will stand at point m, cis thi it options, and bin thi shas to th nw contollin shahold. Th latt will t 00% and will b pushd away fom his quilibium cuv M EOR M. Th only common quilibium contact is th point dfind by th intsction of th two cuvs M EOR M and mm. Fiu 7 mis th quilibium sts of th contollin shahold Fiu 6 and of 36

38 th mino invstos Fiu 5. Th intsction point mans an announcmnt of hih futu conomic pofitability, th sllin of a faction of th capital thouh th EOR mchanisms and/o, on th mino invstos sid, a lss fa of appopiation. Th abov analysis assums an ndonous implicit valu t bcaus th quilibium cuv mm st fo th outsid shaholds fs in fact to th nt conomic tun -t. complmntay loic fo convnc is to condition th dlivd infomation to attact outsid invstos towad th dsid lobal paticipation sta *, cospondin to an conomic futu pofitability * low than. bias of aation o undvaluation of cannot b nvisad in this famwo bcaus th contollin shahold dlivs a sinal thouh objctiv vaiabls on th conomic pofitability of th fim and h dos not manipulat infomation s quation 5. Th pivat infomation on th tu valu of is onous and conditions th pocss. It is dissminatd in th sttin of th quantity quilibium. In od to modify th shap and th location of th cuv mm, oth possibilitis ist. Th fist way could b to modify th acquisition pic. This may b an vntuality in a tnd off wh th poblm of th acqui is at th sam tim to ain contol and to focast th consquncs of th mandatoy bid ul. In that cas, is th pcnta of shas bouht abov th contollin shahold s initially tatd contol sta. This vntuality is not opnd up aft a bloc tad. Th pic sults fom a notiation btwn th pvious and th nw contollin blocholds. Th scond way is to publicly announc that th dsid sta of capital is. This intats th dmand function fo th stocs of th outsid invstos. Th thid way is to duc t, which is und th nw shahold s sponsibility. This is sinald to outsid invstos thouh an incas in. Th contollin shahold may modify th slop paamt of th popiation at and thn, fo a ivn valu 0 of a contol bloc bouht in a dal, st th implicit t *. Rducin th appopiation at shifts downwad th 37

39 quilibium locus mm of outsid shaholds and consquntly movs th quilibium point with M EOR M to th lft, which sults in a low valu fo th shas bouht thouh th mandatoy bid pocdu s Fiu 8. m M m Z M EOR 0 00% Fiu 8: Equilibium choics of contollin shahold and outsid invstos with low appopiation at Th joint quilibium famwo conizs that th two patis intact. That quilibium mis dictly quantity and infomation. Th pic is constaind by lal uls and th taov contt. So, only th quantitis can adjust, and th total sta of capital aft EOR of th contollin shahold must b qual to th ownship pcnta wishd by mino invstos. This Counot quilibium finds its own ulation with th futu conomic pofitability that is announcd by th nw contoll and what h intnds to achiv. In a ational quilibium schdul, this quilibium dfins an implicit contact btwn th nw blochold and th outsid shaholds. Thy chan quantitis and infomation on futu pofits. Rational bhavio pushs th acqui to disclos th tu conomic valu and to sha this infomation with oth invstos. In an EOR systm, th pcnta of capital is an conomically valuabl sinal and mino invstos a not passiv. In a concntatd blochold 38