Handbook of Finance: Investment Management and Financial Management

Chapter 87. Taking Control of a Company

PASCAL QUIRY

Professor of Corporate Finance, HEC Paris

MAURIZIO DALLOCCHIO

Lehman Brothers Professor of Corporate Finance, Bocconi University

YANN LE FUR

Professor of Corporate Finance, HEC Paris

ANTONIO SALVI, PhD

Professor of Corporate Finance, EM Lyon and Bocconi University

Abstract: At any given time, a company can have several valuations, depending on the point of view of the buyer and the seller and their expectations. In taking control of a company, this variety sets the stage for negotiation, but, needless to say, a transaction will take place only if common ground can be found, that is, if the seller's minimum price does not exceed the buyer's maximum price. The art of negotiation consists in allocating the value of the anticipated synergies between the buyer and the seller, in finding equilibrium between their respective positions, so that both come away with a good deal. The seller receives more than the value for the company on a stand-alone basis because he pockets part of the value of the synergies the buyer hopes to unlock. Similarly, the buyer pays out part of the value of the synergies, but has still not paid more than the company is worth to him. Transactions can also result from erroneous valuations. A seller might think his company has reached a peak, for example, and the buyer that it still has growth potential. But generally, out-and-out deception is rarer than one might think. It's usually only in hindsight that one party might ...