Block Premia, Litigation Risk, and Shareholder Protection

Julien Le Maux and Claude Francoeur

European Financial Management, 2014, vol. 20, issue 4, 756-769

Abstract: Blocks of shares are typically traded at a premium for the buyer. The academic literature shows that anticipated private benefits are the main determinant of this premium rather than the projected value of future synergies. The results of this study indicate that a target's litigation risk has a significant impact on the control premium. Acquirers tend to lower block premia significantly in anticipation of potential litigation related to financial disclosure or the target's market value. Legal shareholder protection also plays a significant role in countering shareholder expropriation. Block buyers pay higher premia to acquire targets that operate in protective legal environments.

Date: 2014
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