Strategic Stake Acquisitions in Rival Firms: Common vs. Cross-Ownership

Vincenzo Denicolo and Fausto Panunzi

No 19204, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper examines the problem of a blockholder who controls a firm and seeks to acquire a noncontrolling stake in a rival company. The blockholder can either purchase the stake directly using personal funds or indirectly, through the firm he controls. The first option results in a pattern of common ownership, while the second leads to cross-ownership. We show that common ownership reduces competition intensity more effectively than cross-ownership and allows the blockholder to retain the benefits of the acquisition without sharing them with minority shareholders. However, this may create conflicts of interest with those shareholders, whereas cross-ownership always maintains an alignment of interests. Consequently, the blockholder may prefer cross-ownership if control over his company is not secure and could be challenged by minority shareholders.

Keywords: Competition (search for similar items in EconPapers)
Date: 2024-07
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