Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Wednesday, October 11, 2017

Uncertain merger synergies, passive partial ownership, and merger control

Shekhar, Shiva and Wey, Christian explore Uncertain merger synergies, passive partial ownership, and merger control.

ABSTRACT: We examine the competitive effects of a passive partial ownership (PPO) when it serves as an instrument for the acquirer firm to learn the merger synergies with the target firm in advance. The realization of a synergy is uncertain ex ante, so that a direct merger exhibits a downside risk not only for the merging candidates but also for consumers. We show that minority shareholdings can reduce this downside risk as they allow for a sequential takeover where the acquirer takes an initial minority share, becomes an insider, and learns the merger synergy. We show how this feature of PPOs affects a firm's takeover strategy and the decision problem of the antitrust authority. We derive implications for a merger control approach to PPO acquisitions, where we examine a forward looking price test and a safeharbor rule.

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