Takeover deterrents and cross partial ownership: The case of golden shares

Abstract

We analyse takeovers in an industry with bilateral capital‐linked firms in cross partial ownership (CPO). Before merger, CPO reduces the profitability of involved firms, confirming the “outsider effect.” However, the impact of CPO upon merger profitability is two‐sided in a Cournot setting. CPO, by cointegrating profits, increases output collusion leading to anticompetitive effects with facilitated mergers in most cases. Nonetheless, a protective threshold exists for which CPO arrangements can reduce the incentives for hostile takeovers. This has potentially significant regulatory implications. An illustrative example showcases the potential relevance of CPO as a defence against hostile takeovers across different industries.

Separation versus Affiliation with Partial Vertical Ownership in Network Industries

“…Furthermore, during the "golden shares" era in the 1980's, European governments implemented the use of cross horizontal participations to protect strategic companies 2 from foreign takeovers (Serbera and Fry, 2018). "Deutschland AG" in Germany (Lantenois, 20110 and "noyaux-durs" in France (Goldstein, 1996) complete their use in Europe outside of the United Kingdom (Yergin and Stanislaw, 1998).…”