Efficient and Inefficient Sales of Corporate Control: The Case of Going Private
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Moran Ofir
Abstract
I analyze the legal rules governing the sale-of-corporate-control in the case of going private transactions and examine whether a controlling shareholder must share the premium associated with sale-of-control. I rely on the framework developed in (Bebchuk, L.A. 1994. “Efficient and Inefficient Sales of Corporate Control,” 109 Quarterly Journal of Economics 957–993) regarding these transactions under the adjusted market rule (AMR) enabling different rights for the controlling and minority shareholders, and under the adjusted equal opportunity rule (AEOR) providing equal rights to the minorities and controller. My main findings are that both rules prevent inefficient transfers, since under both the new controller fully internalizes the externality imposed by extracting private benefits of control. However, the AMR is superior in facilitating efficient transfers. This is because the AEOR can prevent efficient transfers, due to the higher price demanded from the buyer in order to compensate both controller and minorities. In consequence, overall, the AMR dominates the AEOR for transactions in which a company is taken private.
Acknowledgements
I would like to thank Ronen Avraham, Lucian Bebchuk, Bernie Black, Jesse Fried, Assaf Hamdani, Sharon Hannes, Ehud Kamar, Alon Klement, Amir Licht, Kate Litvak, Uriel Procaccia and the participants of Tel-Aviv University Law & Economics Workshop, IDC Law & Economics Workshop, Northwestern-IDC Joint Workshop, Rethinking Stakeholders- a Research Symposium, the Center for Rationality Annual Retreat and Ido Krakowsky for excellent research assistance. The Paper was selected for the Israeli Junior Faculty Forum.
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Articles in the same Issue
- Litigation and the Product Rule: A Rent Seeking Approach
- Emissions Trading Hybrids: The Case of the EU ETS
- Takeover Protection and Firm Value
- Rethinking Apology in Tort Litigation Deficiencies in Comprehensiveness Undermine Remedial Effectiveness
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- Punishment Severity and Crime: The Case of Arkansas
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