Efficient and Inefficient Sales of Corporate Control: The Case of Going Private

2018 ◽  
Vol 15 (1) ◽  
Author(s):  
Moran Ofir
Keyword(s):  
Equal Opportunity ◽  
Corporate Control ◽  
Quarterly Journal ◽  
Equal Rights ◽  
Minority Shareholders ◽  
Private Benefits ◽  
Controlling Shareholder ◽  
Legal Rules ◽  
Going Private ◽  
A Company

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.

Majority and Minority Shareholders

2020 ◽  
pp. 119-174
Author(s):  
Paul Davies
Keyword(s):  
At Risk ◽  
High Risk ◽  
Small Group ◽  
Company Law ◽  
Minority Shareholders ◽  
Private Benefits ◽  
Controlling Shareholders ◽  
The Third ◽  
Wide Range ◽  
A Company

Where a company has a controlling or a small group of controlling shareholders, the non-controlling shareholders are at risk that the controllers will extract private benefits of control at the expense of the non-controllers. UK company law contains a wide range of techniques for addressing this issue, some more effective than others. This chapter begins by examining the various ways in which well-advised investors can contract for protection before they enter the company and how the law protects the agreements reached. The second part discusses rights to exit the company upon the occurrence of certain events. The third part discusses disclosure rights, designed to bring self-dealing transactions into the open. The fourth focuses on ways of structuring the board or shareholder body when the decision before it carries a high risk of self-dealing. The final part considers cases where the courts review the substantive fairness of the controllers’ conduct, notably, but not only, the provisions on ‘unfair prejudice.

5. Majority and Minority Shareholders

2020 ◽  
pp. 119-174
Author(s):  
Paul Davies
Keyword(s):  
At Risk ◽  
High Risk ◽  
Small Group ◽  
Company Law ◽  
Minority Shareholders ◽  
Private Benefits ◽  
Controlling Shareholders ◽  
The Third ◽  
Wide Range ◽  
A Company

Where a company has a controlling or a small group of controlling shareholders, the non-controlling shareholders are at risk that the controllers will extract private benefits of control at the expense of the non-controllers. UK company law contains a wide range of techniques for addressing this issue, some more effective than others. This chapter begins by examining the various ways in which well-advised investors can contract for protection before they enter the company and how the law protects the agreements reached. The second part discusses rights to exit the company upon the occurrence of certain events. The third part discusses disclosure rights, designed to bring self-dealing transactions into the open. The fourth focuses on ways of structuring the board or shareholder body when the decision before it carries a high risk of self-dealing. The final part considers cases where the courts review the substantive fairness of the controllers’ conduct, notably, but not only, the provisions on ‘unfair prejudice.

The Municipality as Controlling Shareholder and the Applicability of Law Relating to Groups of Companies

2013 ◽  
Vol 12 (1) ◽  
pp. 127-143
Author(s):  
Peter Podgorelec ◽  
Borut Bratina
Keyword(s):  
Legal Protection ◽  
Minority Shareholders ◽  
Controlling Shareholder ◽  
The Right ◽  
A Company ◽  
Legal Consequences

In the opinion of the authors, the rules of concern law (law relating to groups of companies) included in the Slovenian Companies Act (ZGD-1) must also be applied analogically in cases where municipalities become controlling shareholder in a company. The municipality and one or more companies in which the municipality is a controlling shareholder, form a de facto concern. This gives rise to a number of legal consequences, most importantly to the obligation to draw up a dependence report, to the liability of the municipality and the mayor for damages to the controlled company and to the right of every controlled company’s shareholders to file actio pro socio. Accordingly, legal protection of the controlled company, its minority shareholders and creditors is increased, coinciding with the purpose of concern law. The rules of concern law are, however, relevant only with regard to those influences on the controlled company exercised by the municipality as the controlling shareholder, and not in the case of a municipality exercising its regulatory prerogatives.

Freeze-Out Transactions in Germany and the U.S.: A Comparative Analysis

2012 ◽  
Vol 13 (8) ◽  
pp. 941-978 ◽  
Author(s):  
Christian A. Krebs
Keyword(s):  
Comparative Analysis ◽  
Initial Public Offering ◽  
Minority Shareholders ◽  
Controlling Shareholder ◽  
The Public ◽  
Going Private ◽  
Public Offering ◽  
The U.S ◽  
Freeze Out ◽  
Public Listing

A freeze-out is a transaction in which a controlling shareholder forces out the minority shareholders and compensates them in cash or stock. A successful freeze-out transaction marks the end of the exchange-traded life of a corporation—it is a “going private” transaction. A freeze-out is therefore the counterpart to an initial public offering. Whereas the latter leads to the public listing of a corporation and thus a multiplication of shareholders, the freeze-out transaction aims at reducing the number of shareholders of a corporation to one.

The PCCW Going Private Saga: What Is a Fair Deal?

2012 ◽  
Vol 28 (1) ◽  
pp. 93-114
Author(s):  
Suwina L. S. Cheng
Keyword(s):  
Real World ◽  
Ethical Issues ◽  
Minority Shareholder ◽  
Minority Shareholders ◽  
Controlling Shareholders ◽  
The Real ◽  
Going Private ◽  
Shareholder Protection ◽  
Minority Shareholder Protection ◽  
A Company

ABSTRACT: This instructional case discusses the process and maneuvers of a going private scheme in which the controlling shareholders of Pacific Century CyberWorks (PCCW) proposed to buy out all the shares of the minority shareholders and to then delist the company. The case highlights the importance of applying accounting knowledge in evaluating the value of a company. It also exposes students to the real-world ethical issues relating to vote manipulation and minority shareholder protection in the voting process of a going private deal.

scholarly journals ”The good, the bad, and the ugly” private benefits of control and their regulatory implications

2008 ◽  
Vol 5 (4) ◽  
pp. 477-491 ◽  
Author(s):  
Alessio M. Pacces
Keyword(s):  
Corporate Governance ◽  
Corporate Control ◽  
Legal Protection ◽  
Corporate Law ◽  
Legal Institutions ◽  
Minority Shareholders ◽  
Private Benefits ◽  
Controlling Shareholders ◽  
Private Benefits Of Control ◽  
The Law

This paper attempts to shed a new light on the economics and the law of corporate governance. It so does by taking stock of the weaknesses of the standard account of how law ‘matters’ for separation of ownership and control. This account fails to explain comparative corporate governance. Both the ownership structure and the functioning of the market for corporate control do not seem to depend entirely on the strength with which non-controlling shareholders are protected by corporate law. Without claiming that legal protection of minority shareholders does not matter in corporate governance, this paper shows that protection and exchange of corporate control is at least as important and so are the legal institutions that support them. This result is derived by introducing a third category of private benefits of control (idiosyncratic PBC), which supplements the more traditional specifications as inefficient consumption of control perquisites (distortionary PBC) or outright expropriation of shareholder value (diversionary PBC).The implications for corporate law are broader than those of the ‘law matters’ framework. Even though legal institutions effectively constrain expropriation of non-controlling shareholders, they may still make corporate governance inefficient when they fail to provide entitlements to uncontested control in dependently of how much ownership is retained by corporate controllers. Likewise, regulation may undermine the takeover process when it restricts side payments that ultimately support efficient bargaining upon the value of corporate control

Equal Rights and Unequal People

2017 ◽  
Author(s):  
Richard D. Brown
Keyword(s):  
Public Opinion ◽  
Social Class ◽  
Equal Opportunity ◽  
Equal Treatment ◽  
Equal Rights ◽  
Criminal Trials ◽  
The Law ◽  
And Gender ◽  
The Ideal

Though Americans have favored the idea of equal rights and equal opportunity, they recognize that differences in wealth and social advantage, like differences in ability and appearance, influence the realization, or not, of equal rights, including equality before the law. In the generations after 1776 the rights of creditors, for example, often overrode the rights of debtors. And criminal trials demonstrate that in courtrooms equal treatment was most often achieved when defendant and victim came from the same social class. Otherwise if they came from different classes social realities, including ethnicity, color, and gender could shape court officials and public opinion. And when a woman’s sexual virtue was compromised, her credibility was almost always discounted. In principle officials paid homage to the ideal of equality before the law, but in practice unequal rights often prevailed.

scholarly journals Corporate governance and firm valuation – the case of China

2009 ◽  
Vol 7 (2) ◽  
pp. 21-29 ◽  
Author(s):  
Ohannes George Paskelian ◽  
Stephen Bell
Keyword(s):  
Firm Value ◽  
Cash Holdings ◽  
Firm Valuation ◽  
Government Ownership ◽  
Private Benefits ◽  
Controlling Shareholder ◽  
Foreign Investors ◽  
High Government ◽  
Corporate Cash Holdings ◽  
Strong Inverse Relationship

We examine the determinants and implications of Chinese corporate cash holdings in the 1993- 2006 period. Agency theories assert that firms with a large controlling shareholder have relatively large cash holdings because of the greater ability of the controlling shareholder to extract private benefits from the cash holdings. Our findings show a very strong inverse relationship between cash holdings and firm valuation in high government ownership firms. Also, we find that in firms with high government ownership, dividend payouts are highly valued. We conclude that Chinese investors see government ownership as a factor that reduces firm value. They prefer relatively higher dividends from firms having high government ownership. Conversely, investors assign much higher value to firms with relatively low government ownership and they tend to be neutral about the dividends payouts of such firms. Also, investors value highly the presence of foreign investors in Chinese firms and tend to be neutral about dividend payouts of firms with high foreign ownership concentration.

scholarly journals Investor Protection and Agency Theory in Corporate Governance in Pakistan

2021 ◽  
Vol 3 (1) ◽  
pp. 12-21
Author(s):  
Imtiaz Ahmed Khan ◽  
Altaf Hussain Abro ◽  
Farooque Ahmed Leghari
Keyword(s):  
Corporate Governance ◽  
Agency Theory ◽  
Agency Cost ◽  
Corporate Structure ◽  
Minority Shareholders ◽  
Private Benefits ◽  
Controlling Shareholders ◽  
Global Trend ◽  
The Cost ◽  
Very High

The paper discusses the minority shareholders’ protection under the quantumof agency cost in corporate governance in Pakistan. The agency theory statesthat in most of the cases, the controlling shareholders and the topmanagement are normally involved in expropriating the funds of the company.This phenomenon increases the agency cost. The agency cost is directlyproportional to the cost of functioning of the company. In other words, theagency cost is inversely proportional to the profit of the company. Accordingto the agency theory, if the agency cost is decreased, the profit for investorincreases. The Pakistani corporate sector is dominated by the businessfamilies, the state and an opportunity to get the private benefits at the cost ofother stakeholders. There are the different mechanisms as discussed andapplied around the world to minimize the agency cost so as to make companyfinancially strong and better profit for the investors. In Pakistan, the agencycost is very high. Hence, there is a need to revamp the corporate governancemechanism to reduce the agency cost in order to provide a better protection tominority shareholders in a particular in the context of the global trend keepingin the view of the nature of corporate structure in Pakistan.

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