منابع افزایش ثروت سهامداران از خصوصی شدن معاملات : نقش سهامداران کنترل

The present study investigates the sources of shareholder wealth gains – as measured by cumulative abnormal returns and premiums – from going private transactions (GPTs). Using data for 314 GPTs from 18 Western European countries, we find that the announcements of GPTs generate a cumulative average abnormal return of about 22% and that pre-transaction shareholders on average receive a raw premium of about 36%. We further find that these shareholder wealth gains increase with the degree of separation of cash-flow and control rights of the pre-transaction ultimate owner and decrease with its ownership interests and with the presence of a second large shareholder. Taken together, these findings support the view that GPTs are expected to mitigate the inefficiencies induced by pre-transaction agency problems between controlling and minority shareholders. Thus, shareholder wealth gains from GPTs reflect the potential additional value that will be created under private ownership.

The last three decades have seen a number of going private waves in major stock markets around the world, mainly in the US and the UK (see e.g., Jensen, 1993 and Renneboog and Simons, 2005 and Renneboog et al., 2007). In these transactions, a privately held entity buys out the shareholders of a public firm and delists it from the stock exchange. Since the late 1970s, the US and the UK have experienced the growth of an important going private market (see, Cumming et al., 2007 and Kaplan and Strömberg, 2009). Every year, dozens of firms change their status to become privately held despite the numerous advantages of being listed in the stock market (media exposure, risk diversification, etc.). GPTs in billions of dollars are now common in these markets. Shareholders of target firms may reap substantial gains when their stakes are bought out at large premiums by the bidders.1 While several studies have raised questions about the sources of these gains, the majority of the extant research has been confined to US and UK contexts. The going private literature falls into two main strands. The first strand deals with the determinants of the going private decision (Lehn and Poulsen, 1989, Kim and Lyn, 1991 and Weir et al., 2005; etc.). The second strand, which is based on the gain-sharing hypothesis described by DeAngelo et al. (1984), examines the sources of shareholder wealth gains from GPTs. This hypothesis stipulates that minority stockholders in publicly listed firms share in the expected productive gains from going private because of their rights to vote on undertaken decisions, to hold back their shares in tender offer proposals or to sue the firm for wrongful actions. The magnitude and the sources of these gains are examined in the relevant literature using an event study methodology and/or a premium analysis (e.g., DeAngelo et al., 1984, Lehn and Poulsen, 1989 and Renneboog et al., 2007). The present study uses this second strand of literature as a starting point and makes three major contributions to the existing research on going private. First, to the best of our knowledge, this paper is among the first to focus on the impact of the pre-transaction agency problems between controlling and minority shareholders on expected wealth gains from GPTs. Previous studies on going private have mainly focused on the US and the UK markets, which are characterized by the predominance of widely held public firms (e.g., Lehn and Poulsen, 1989 and Renneboog et al., 2007) and where the main agency problem is between managers and dispersed shareholders (Jensen and Meckling, 1976). In most other countries, including Continental Western European countries, closely-held firms dominate the economy and the main agency problem is between controlling and minority shareholders (e.g., La Porta et al., 1999 and Faccio and Lang, 2002). Our paper advances the existing literature by providing evidence on the role of pre-transaction controlling owners in determining shareholders’ wealth gains from GPTs. In particular, it shows that the degree of separation of cash-flow and control rights of the pre-transaction ultimate owners (i.e., excess control) has a first-order effect on these gains. Second, the present paper adds a new dimension to the growing body of literature on going private by investigating the effect of pre-transaction multiple large shareholders (MLS), as opposed to just one large shareholder, on these gains. Recent studies suggest that MLS can perform a corporate governance role by serving a valuable monitoring function in reducing the diversion of corporate resources (e.g., Maury and Pajuste, 2005, Attig et al., 2008 and Laeven and Levine, 2008). However, to our knowledge, no prior studies have been conducted to directly link the presence of MLS to shareholders’ wealth gains from GPTs. This paper fills this void by providing evidence on this important, but hitherto unaddressed, issue. Third, this study presents a new insight into the sources of shareholders’ wealth gains from GPTs by focusing on an important, yet underexplored, part of the world namely, Western Europe. Many of the Western European countries have had active going private markets in terms of deal number and value from the mid-1990s onwards (see, for e.g., Geranio and Zanotti, 2012). Moreover, Western European countries provide an excellent laboratory to examine the impact of controlling owners and MLS on shareholders’ wealth gains from GPTs since public firms in these countries are characterized by closely held ownership.2 Besides, controlling owners of Western European public firms have different means whereby they can separate cash-flow rights from control rights (dual class shares, pyramids, etc.), which implies a considerable risk of agency conflicts between controlling and minority shareholders. Furthermore, the presence of MLS is common in many Western European countries. For instance, Laeven and Levine (2008) find that MLS are present in 33.93% of Western European listed firms (at the 10% threshold). Similar results are found by Faccio and Lang (2002).3 Our analysis uses data on 314 firms that went private between January 1997 and December 2011 across 18 Western European countries namely, Austria, Belgium, Cyprus, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden and Switzerland. Apart from few studies (such as Bajo et al., 2013, Croci and Del Giudice, 2014 and Martinez and Serve, 2011), existing research on GPTs has mainly focused on leveraged buyouts without paying much attention to deals promoted by existing shareholders (see, for example, Andres et al., 2007, Demiroglu and James, 2010 and Officer et al., 2010). In this paper, we use a sample of GPTs that encompasses leveraged and non-leveraged GPTs as well as deals conducted by existing shareholders. The expected shareholder wealth gains from GPTs are measured using cumulative abnormal returns (CARs) and premiums. The different cumulative average abnormal returns associated with the announcements of GPTs range from about 14% to about 22%. Final bidders pay pre-going private shareholders an average raw premium of about 36%. These findings are consistent with the gain-sharing hypothesis. We find that CARs and premiums are greater when the pre-transaction target firm exhibits a higher separation of cash-flow and control rights of its ultimate owner. We also show that the wealth gains from GPTs decrease with the ownership interests of the pre-transaction ultimate owner. These results indicate that the reduction of costs resulting from agency problems between dominant and small shareholders has an important impact on shareholder gains in Western European GPTs. We also show that the presence of MLS prior to buyouts is associated with lower CARs and premiums. MLS serve a monitoring role in mitigating the pre-going private agency problems between controlling and minority shareholders. Thus, there is less room for operating performance improvements after the buyout. This negative relation is especially strong when the second-largest shareholder prior to going private is a family. Consistent with recent research, we find that undervalued firms register higher CARs and premiums. This finding is consistent with the view that pre-going private firms are unable to attract investors’ interest, which may be due to the adoption by the management of opportunistic behavior. Furthermore, we document evidence that firms with higher free cash flow (FCF) are more likely to register higher premiums, which implies that the pre-going private insiders in these firms are more likely to inefficiently use FCF to extract private benefits of control. We also show that tax incentives and the reduction of pre-going private listing costs do not have an impact on shareholder gains from Western European GPTs. The remainder of the paper is organized as follows. Section 2 discusses how pre-going private agency costs may affect the sources of shareholder wealth gains from GPTs. Section 3 describes the sample and data. Section 4 explains the methodology. The penultimate section presents the results of the empirical analyses. The ultimate section reviews the central findings and concludes the paper.

Little research, thus far, has been conducted on the sources of expected shareholder wealth gains from GPTs outside the US and the UK. The Anglo-American corporate landscape is characterized by the predominance of widely held firms, which is not the norm elsewhere (La Porta et al., 1999 and Faccio and Lang, 2002). Consequently, it is questionable whether the results and conclusions of previous relevant research can be extrapolated to other contexts. Our study extends the going private literature by analyzing the sources of expected shareholder gains from Western European buyouts. The ownership structure of Western European firms is generally concentrated. Ultimate owners of closely held firms use various control-enhancing mechanisms –including pyramiding and dual class shares– that enable them to separate control from cash-flow rights. In the present study, expected gains from GPTs are analyzed using two methodologies namely, an event study and a premium analysis. The empirical results show that the CAARs associated with the first announcement of the going private range from 14% to 22% and that pre-transaction shareholders on average receive a raw premium of about 36%. Our paper provides several interesting findings. We find that shareholder wealth gains from going private are greater when the pre-transaction target firm exhibits a higher separation of cash-flow and control rights of its ultimate owner. This finding suggests that these gains are largely the result of a potential reduction in pre-transaction inefficiencies induced by agency conflicts between controlling and minority shareholders under private ownership. We also find that the CARs and premiums decrease with the ownership interests of the pre-transaction ultimate owners. This result is consistent with the view that higher cash-flow rights limit the ultimate owner’s incentives to extract private benefits and induce her to run the firm properly, which reduces the scope for operating performance improvements after going private. Moreover, we show that both CARs and premiums are lower for firms with more than one controlling shareholder prior to going private. This result supports the view that pre-transaction MLS play an important monitoring role by mitigating the agency problems between controlling and minority shareholders, which implies less scope for additional value creation after the buyout. Additional findings provide evidence that higher shareholder wealth gains are associated with higher degree of share price undervaluation before the GPT, corroborating the results of recent studies in Europe. Besides, firms with higher pre-transaction free cash flows and GPTs promoted by family controlling shareholders register higher abnormal returns and premiums. Consistent with existing research, we find that tax incentives and the reduction of listing costs do not affect shareholder gains from GPTs. Taken together, our findings identify pre-transaction ownership structure as an important determinant of shareholders’ wealth gains from GPTs in a concentrated ownership setting. To the best of our knowledge, the present paper is the first to provide evidence on the impact of the separation of cash-flow and control rights of the pre-transaction ultimate owners on these gains. Ours is also the first paper to link the presence of pre-transaction MLS to the expected wealth gains from GPTs. Moreover, this study augments empirical research on going private by focusing on Western European countries that have been neglected in prior research. Collectively, by examining how controlling shareholders play a role in determining the wealth gains from GPTs, our findings provide evidence on an interesting issue that is at the confluence of the corporate governance and going private literatures.