Non-Controlling Blocks


Speaker


Abstract

Non-controlling blocks arise when a firm acquires a significant stake in another firm that already has a controlling shareholder. Using a sample of European deals I study non-controlling blocks. I study both their determinants and their effects. Consistent with a potential expropriation by targets’ controlling shareholders, I find that targets’ agency problems not only discourage them from taking place, they also affect the price acquirers pay. Yet non-controlling blocks also fulfill two roles. They help financial acquirers in getting their targets being taken over afterwards. They also solve contractual incompleteness’ problems between firms and their intensive R&D suppliers. In line with this, non-controlling blocks’ targets increase investment and innovation after the deal. Surprisingly, they do not seem to alleviate targets’ financial constraints.