Acquisitions - when the acquiring price for shares is below the market price

What is it about?

Most of the studies regarding control premium are focussed on the case in which it is positive. We considered the case when it is negative, investigating the determinants of the discount for control, having as study case the Romanian listed companies. Comparative to the general case of control premium, discounts for control are also determined by some other specific factors, like the number of non-trading days and the cash ratio. Some determinant factors of control premium have an opposite influence when this is negative: the percentage of shares purchased in the transaction, the ownership concentration, the fact the buyer or the seller is domestic, and the existence of a major shareholder owning more than 50% of shares. Consequently, some factors usually used in explaining the control premium cannot be suitably used for the case of the discount for control. Moreover, the negative impact of the undiversified portfolio is validated.

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Photo by Paul Gilmore on Unsplash

Photo by Paul Gilmore on Unsplash

Why is it important?

*) analysing the discount for control, we have found that it is characterized by some specific factors, different from those characteristics for the control premium. Even more important, the coefficient sign of some determinant factors of the control premium in the general case change if the control premium is negative. Consequently, some factors usually used in explaining the control premium cannot be suitably used for the case of the discount for control. Moreover, the hypothesis of the negative impact of the costs related to the undiversified portfolio is validated. *) we make this analysis for th case of an emergent market, a post communist European country (Romania)

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