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Department of Economics, Norwegian School of Economics (NHH) Discussion Paper Series in Economics, Department of Economics, Norwegian School of Economics (NHH)

No 1/2010:
Mergers and Partial Ownership.

Řystein Foros (), Hans Jarle Kind () and Greg Shaffer

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.

Keywords: Media economics; Mergers; Corporate Control; Financial Control; (follow links to similar papers)

JEL-Codes: L13; L22; L82; (follow links to similar papers)

20 pages, January 21, 2010

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