ABSTRACT

This book regards takeovers as the way to minimize distortionary private benefits over time. This chapter illustrates the operation of the market for corporate control under the assumption that incumbents have idiosyncratic control rents to protect, which allows takeovers to only be friendly. It is shown that, in this situation, effective curbs on the ability of incumbents and/or insurgents to expropriate minority shareholders are sufficient to guarantee that takeovers are value-increasing. This chapter argues that these curbs should be implemented by mechanisms other than takeover regulation. The latter should limit the ability of minority shareholders to free ride by designing optimal squeeze-out rules.