Download Tender Offers versus Block Trades

Tender Offers versus Block Trades: Empirical Evidence
MARTIN HOLMÉNa and EUGENE NIVOROZHKINb
Forthcoming Managerial and Decision Economics
Abstract
In this paper, we test whether the determinants of block trade and non-partial tender offer
probabilities differ and whether the relative magnitude of security and private benefits can
explain the choice of transfer mode. We investigate the Swedish market for corporate control.
The results emphasize the importance of investigating block trades and tender offers as two
competing events. The proxies for private benefits of control, small controling voting blocks
and separation of voting rights from cash flow rights are positively related to the likelihood of
a block trade but negatively related to the likelihood of a non-partial tender offer. Our results
suggest that separation of voting rights from cash flow rights might limit the efficiency of the
market for corporate control. The prevalence of block trades in the presence of greater private
benefits of control highlights the disadvantages of this control transfer mode in terms of
incentive alignment between the buyer and the remaining dispersed shareholders.
Keywords: Tender offers; Block trades; Ownership structure; Private benefits of control;
Dual class shares; Stock pyramids
JEL Classification: G34; G32
The authors would like to thank Tim Broadhurst, Cynthia Campbell, Ettore Croci, Thomas Lagoarde-Segot,
Fredrik Lindqvist, and Richard Sweeney for valuable comments. Comments from participants at the EFMA
symposium on Corporate Governance in Milan, the FMA meeting in Barcelona, the 2007 SNEE conference, the
2008 INFINITI Conference on International Finance at Trinity College Dublin, and a seminar at the Research
Institute of Industrial Economics are also acknowledged. Financial Support from Jan Wallander’s and Tom
Hedelius Research Foundation and VINNOVA is gratefully acknowledged.
a
Corresponding author: Centre for Finance and Department of Economics, University of Gothenburg, Box 640,
405 30 Gothenburg, Sweden, and Department of Finance and Statistics, Hanken School of Economics,
Arkadiagatan 22, 00101 Helsinki, Finland. E-mail: [email protected] ; Phone: +46 31 786 6442
b
SSEES, University College London, Gower Street, London WC1E 6BT, UK
Tender Offers versus Block Trades: Empirical Evidence
Abstract
In this paper, we test whether the determinants of block trade and non-partial tender offer
probabilities differ and whether the relative magnitude of security and private benefits can
explain the choice of transfer mode. We investigate the Swedish market for corporate control.
The results emphasize the importance of investigating block trades and tender offers as two
competing events. The proxies for private benefits of control, small controling voting blocks
and separation of voting rights from cash flow rights, are positively related to the likelihood
of a block trade but negatively related to the likelihood of a non-partial tender offer. Our
results suggest that separation of voting rights from cash flow rights might limit the efficiency
of the market for corporate control. The prevalence of block trades in the presence of greater
private benefits of control highlights the disadvantages of this control transfer mode in terms
of incentive alignment between the buyer and the remaining dispersed shareholders.
Keywords: Tender offers; Block trades; Ownership structure; Private benefits of control;
Dual class shares; Stock pyramids
JEL Classification: G34; G32
1.
Introduction
This paper addresses two questions. First, do the determinants of block trade and non-partial
tender offer probabilities differ? And second, does the controlling shareholder’s relative
magnitude of security benefits and pecuniary private benefits explain the choice of transfer
mode?1 Security and private benefits should be substitutes. We hypothesize that the relative
magnitude of private benefits proportionately increases with a reduction in a controlling
ownership stake and with an increase in a wedge between voting rights and cash flow rights.
A wedge between voting rights and cash flow rights can be achieved by the use of dual class
shares and stock pyramids. A greater proportion of private benefits would increase the
incentives for preserving these benefits and would therefore increase the probability of a
block trade transfer mode (Burkart, Gromb, and Panunzi, 2000). Given that private benefits
tend to be internalised in a non-partial tender offer, we expect that the likelihood of a tender
offer would tend to increase with a reduction in the factors used as proxies for private benefits
of control.
Researchers in corporate finance have given considerable attention to issues
affecting transfer of control to the most efficient user of corporate resources.2 The market for
corporate control represents the institutional framework facilitating control changes. The
typical modes of control transfers in publicly traded companies are block trades and nonpartial tender offers.3 Until recently, the finance literature tended to treat the two transfer
modes as equivalent as long as a block trade or tender offer resulted in the same party having
control (Burkart et al., 2000). Burkart et al. (2000) argue theoretically that the incentive effect
of the controling party’s final holding has largely been overlooked in the control transfer
literature (e.g. Grossman and Hart, 1988; Bebchuk, 1994; Zingales, 1995) and is likely to
1
With security benefits, we mean dividends and capital gains that accrue to all shareholders.
See e.g. Grossman and Hart (1980) and Shleifer and Vishny (1986).
3
Control changes through a block trade tend to be more common than tender offers. In 2000, only 27 percent of
the changes in control of US firms were created by tender offers (Schmid, 2002).
2
1
have a significant effect on the choice of transfer mode. One suggested factor affecting this
choice is interdependence of security benefits and private benefits attached to a controling
ownership stake.
Bethel, Liebeskind, and Opler (1998) document that the market for partial corporate
control (block trades) plays an important role in limiting the agency costs in US corporations.
However, little is known about the markets of corporate control outside the Anglo-Saxon
countries.4 Denis and McConnell (2003) point out that takeover activity does not appear to be
an important governance mechanism throughout the world. Several papers have documented
significant differences between the Anglo-Saxon countries and the rest of the world in terms
of the typical corporate ownership structure (see e.g. La Porta et al., 1999). However, Franks
and Mayer (2001) argue that the most important differences between Anglo-Saxon countries
and continental Europe (Germany) are in terms of dynamic relations involving transfers of
control. For example, the gains from German block trades are small and appear to solely
accrue to large blockholders.
In this paper, we investigate the Swedish market for corporate control. Exploring the
effect of private benefits of control on the choice of a control transfer mode in the context of
the Swedish equity market offers a couple of advantages. First, Sweden has an extreme
separation of ownership and control. It ranks #1 in terms of the use of dual class shares and #2
in terms of the frequency of pyramid structures (after Belgium) (La Porta, Lopez-de-Silanes,
and Shleifer, 1999).5 Thus, we have a simple measure of the incentives to extract private
benefits from the corporation, i.e. the separation between ownership and control due to dual
class shares and pyramids. This measure varies both between and within firms over time and
it has also been used in earlier literature (see e.g. Claessens, Djankov, Fan and Lang, 2002;
4
The value of European mergers and acquisitions exceeded that in America for the first time in 2006
(Economist, Jan 25 2007).
5
Typically, Swedish firms issue A and B shares. The A-shares are one-share one-vote while the B shares are
one-share 0.1 votes.
2
Faccio, Lang and Young, 2001; Giannetti and Simonov, 2006). Second, the high frequency of
dual class shares and pyramids allows us to explore the relation between the market for
corporate control and these instruments per se. In particular, we are able to disentangle the
effect of dual class shares from the pyramid effect on the market for corporate control.
Theoretically, dual class shares and pyramids are often considered to be perfect substitutes.
Most of the existing financial economics literature on the likelihood of control
changes relies on binary choice models. We adopt another approach and estimate the hazard
rate of a non-partial tender offer and a block trade, respectively.6 We use panel data where a
majority of the firms are not subject to a non-partial tender offer or involved in a block trade
during our sampling period. The hazard function approach allows us to investigate whether,
given that a firm has not been subject to a non-partial tender offer (experienced a block trade)
up to a certain point, changes in particular characteristics (e.g. ownership) of the firm will
lead to a non-partial tender offer (block trade) event.
In our main tests, we use an unbalanced panel of 195 large Swedish non-financial
firms listed on the Stockholm Stock Exchange 1985-1998.7 The sample contains 1461 firm
years. On average, about 70 percent of the Swedish stock market capitalization are included in
the sample each year. The sample includes 28 successful non-partial tender offers and 62
block trades.
The evidence presented in this paper points out the importance of studying the control
transfers through non-partial tender offers and block trades as two distinctive events,
conditional on the regulatory environment. In accordance with our expectations, we find some
important differences in factors determining the likelihood of the two events. Combining
6
Helwege, Pirinsky, and Stulz (2007) estimate hazard functions when estimating the likelihood of a firm
becoming widely held.
7
The sample selection stops in 1998 since Sweden introduced a mandatory bid rule in 1999. A mandatory bid
rule will trigger a non-partial tender offer if the traded block is sufficiently large. Thus, the analysis of the
determinants of block trades and tender offers, respectively, becomes ambiguous with a mandatory bid rule in
place. However, as a robustness test, we examine the likelihood of block trades in the 1999-2005 period.
3
these events in a single model would lead to obscuring the information conveyed by a choice
of transfer mode (Burkart et al., 2000). An increase in the largest shareholder’s ownership
stake tends to increase (decrease) the likelihood of a non-partial tender offer (block trade).
Conversely, the use of dual class shares by the largest shareholder decreases (increases) the
likelihood of a non-partial tender offer (block trade). Private benefits are proportionately
increasing with a decrease in a controlling ownership stake and an increased separation
between cash flow and control rights. When the relative magnitude of private benefits of
control is large, the bidder and the incumbent in the target negotiate a control block transfer
since the private benefits will be internalized in a tender offer.
To our knowledge, this paper is the first empirical attempt at illustrating the critical
importance of the interdependence between private and security benefits for the choice of
transfer mode in an equity transaction involving change of control. Furthermore, while several
papers have estimated the likelihood of non-partial takeovers,8 Rapp et al. (2008) is the only
other paper of which we are aware that empirically investigates the likelihood of block
trades9. As far as we know, empirical results on the effect of separation of voting rights from
cash flow rights on the market for corporate control are also scarce.
Our results suggest that the separation of voting rights from cash flow rights affects
the market for corporate control by reducing the likelihood of a tender offer while increasing
the likelihood of block trades. Even if block trades on average increase firm value, this does
not prove that firm value is maximized at block trades or that it is the best feasible outcome
(Burkart et al., 2000). It has been shown that separation of voting rights from cash flow rights
is the norm outside the Anglo-Saxon countries (see e.g. La Porta et al., 1999). We argue that
this partly explains why there are important differences between Anglo-Saxon countries and
8
See e.g. Hasbrouck (1985), Walkling (1985), Palepu (1986), Ambrose and Megginson (1992) and Powell
(1997).
9
Unlike our paper, the paper by Rapp et al. (2008) does not consider tender offers and block trades as alternative
control transfer modes.
4
the rest of the world in terms of dynamic relations involving control transfers (Franks and
Mayer, 2001). While the market for corporate control in the Anglo-Saxon countries is an
important governance mechanism, it is not clear that takeover activity plays an important role
in limiting agency problems in other parts of the world (Bethel et al., 1998; Denis and
McConnell, 2003).
The rest of the paper is organized as follows. The next section outlines our hypotheses
and describes the data. Section 3 discusses the survival analysis methodology. Section 4
presents the empirical results and the final section summarizes and concludes the paper.
2.
Hypotheses and Data
2.1.
Hypotheses non-partial tender offers and block trades
The hypotheses are outlined for a situation without a mandatory bid rule. In the empirical
section, we will discuss how the hypotheses might change with the introduction of a
mandatory bid rule.
Grossman and Hart (1980) show that due to the free-rider problem, an outsider will
never take over a diffusely held firm in order to implement value-improving changes. Shleifer
and Vishny (1986) consider a firm with a large minority blockholder and a fringe of small
shareholders. When the large shareholder’s return on his own shares suffices to cover
monitoring and takeover costs, performance improving tender offers will be possible. Either
the large shareholder makes a tender offer himself or he makes it easier for a well-informed
outsider, who has no initial position in the firm, to make a tender offer. The outsider and the
incumbent large shareholder would simply split the gains from the rise in the price of the
incumbent’s shares. The more shares the incumbent owns, the more likely it is that the return
associated with improved performance will cover monitoring and takeover costs. Viewed in
another way, the more shares the incumbent owns, the easier it is to convince small
5
shareholders that a low bid premium indicates a small performance improvement rather than
an attempt to profit at their expense. If the incumbent accepts a bid by an outsider, it is
convincing for small shareholders; since the incumbent’s stake in firm increases, it is in his
own interest to accept tender offers associated with some lower value improvements. This is
the basis for our first hypothesis
Hypothesis 1: The probability of a non-partial tender offer is increasing in the largest
shareholder’s ownership in the firm.
Hypothesis 1 deals with friendly takeovers, i.e. the bidder has negotiated the terms of the
tender offer with the management and large shareholders in the target before the tender offer
is made public. Even if the frequency of hostile takeovers has increased in Sweden since the
late 1990s, hostile takeovers were very rare in most of our sample period. It could be argued
that if hostile takeovers dominated the Swedish market for corporate control, hypothesis 1
should be reversed. The risk of a hostile takeover is decreasing in the largest shareholder’s
ownership in the firm, since the probability of a control contest is inversely related to the
ownership concentration of the firm (Nenova, 2003).
In addition, Shleifer and Vishny (1986) do not consider the possibility that the large
minority shareholder derives private benefits of control and how this would affect the
probability of a successful tender offer.10 Burkart et al. (2000) also consider control transfers
in firms with a dominant incumbent minority shareholder and otherwise dispersed owners.
The incumbent’s influence over corporate decisions enables him to pursue own goals and
extract private benefits. The incumbent can sell the minority block to an outside bidder in a
negotiated block trade or as part of a non-partial tender offer. All private benefits are
10
We define a tender offer as successful if the target shareholders accept the offer and sell their shares to the
bidder.
6
transferable to the bidder and the bidder is therefore willing to compensate the incumbent for
the private benefits. The bidder will improve firm performance irrespective of transfer mode.
However, as compared to a block trade, a tender offer leads to more concentrated ownership.
The controlling shareholder’s incentive to extract private benefits decreases with ownership
concentration, since he internalizes more of the inefficiencies associated with the extraction of
private benefits when the size of the block increases. Indeed, after a successful non-partial
tender offer, there are no private benefits of control. Burkart et al. consider the incumbent and
the bidder as a coalition which must acquire shares at the post tender offer value, since the
dispersed shareholders free-ride in tender offers. Thus, since the coalition is not compensated
for the reduction in private benefits associated with more concentrated ownership, only the
block is traded. We relax this condition and base our second hypothesis on the argument that
the contribution to the value of the controlling block of private benefits relative to security
benefits increases when the size of the controlling block decreases.
Hypothesis 2: The probability of a block trade is decreasing in the largest shareholder’s
ownership in the firm.
When the large shareholder’s control of voting rights is separated from cash flow rights by the
use of dual class of shares and/or stock pyramids, the large shareholder’s mitigation of the
free-rider problem is reduced. Grossman and Hart (1988) also show how deviations from oneshare one-vote can reduce the likelihood of takeovers in the presence of private benefits of
control.
Hypothesis 3: The probability of a non-partial tender offer is decreasing in the large
shareholder’s separation of voting rights and cash flow rights.
7
Finally, all other things equal, a larger wedge between voting and cash flow rights is likely to
increase the relative magnitude of the private benefits for the controlling owner, since it
increases his ability/incentive to extract private benefits (Bebchuk, Kraakman, and Triantis,
1999; Claessens et al., 2002; Barak and Lauterbach, 2007). Therefore, a larger wedge between
voting rights and cash flow rights should increase the likelihood of a block trade (Burkart et
al., 2000).
Hypothesis 4: The probability of a block trade is increasing in the large shareholder’s
separation of voting rights and cash flow rights.
The private benefits of control are not easily determined or quantified and thus, it is very
difficult to design an accurate proxy (Dyck and Zingales, 2004). Following the existing
literature on corporate governance (e.g. Bebchuk et al., 1999; La Porta, Lopez-de-Silanes, and
Shleifer, 2002), we use the wedge between voting rights and cash flow rights as a gauge on
the ability/incentive to extract private benefits. Claessens et al. (2002) use the wedge between
voting rights and cash flow rights as a gauge on entrenchment.
There are a number of other methods that have been used to measure private
benefits. One proxy is the premium paid for a controlling block of shares (Barclay and
Holderness, 1989; Dyck and Zingales, 2004). Needless to say, this proxy can only be
constructed for firms that experience a block trade and cannot be used to predict a block trade.
A second proxy for private benefits is the premium paid for voting shares when a company
has both voting and non-voting shares (Nenova, 2003; Zingales, 1994). Although many
Swedish firms have dual class shares, only the low voting B-shares would be traded for a
large number of these firms while the controlling owner would often keep all A-shares.
8
Hence, in many cases it is impossible to measure the voting premium. Relying on this
measure would reduce our sample size by roughly 75 percent. Furthermore, Rydqvist (1996)
shows that the voting premium dramatically increases in control contests. It is likely that the
voting premium would increase prior to public tender offers and block trades. Thus, the
interpretation of this variable in terms of predicting public tender offers and block trades
would be somewhat ambiguous. Empirical studies that attempt to measure the private benefits
of control generally find that the “valuation” proxies for private benefits of control in Sweden
are similar to, but somewhat lower than, those in the US and the UK (see Nenova, 2003; Dyck
and Zingales, 2004).
2.2.
Sample Selection
Our main tests are performed on an unbalanced panel dataset containing accounting data for
the largest non-financial Swedish firms listed on the Stockholm Stock Exchange 1985-1998.
The sample stops in 1998 since Sweden introduced a Mandatory Bid Rule (MBR) in 1999.11
The rule requires that the bidder in a block trade offers small shareholders the same price per
share as he paid the incumbent in the block. The threshold at which the mandatory bid rule
comes into play was first set to 40 percent of the voting rights. This threshold was changed to
30 percent of the voting rights in 2004. Thus, the MBR directly affects the ability of large
shareholders to transfer private benefits and therefore, we do not expect to find any support
for hypotheses 2 and 4 with an MBR. In fact, in the competing risk framework we adopt, our
model specification is no longer valid in the post- MBR period, given the restrictions imposed
on the control transfer mode. However, as a robustness test, we estimate the determinants of
block trades on a sample containing data for 1999-2005.
11
The rule was introduced as an amendment of the Swedish self-regulation on takeovers.
9
The accounting data is collected from the Findata Trust database. The sample contains
the vast majority of the largest non-financial public firms in this time period. Some large
firms that were only listed for one or two years before delisting are not included in the
sample.
The accounting data is combined with ownership data from Sundqvist (1985-1993)
and Sundin and Sundqvist (1994-1998). This source reports the 25 largest owners in all listed
firms as of January each year. Sundin and Sundqvist provide detailed information on coalition
structures in a wide sense. Thus, if two large shareholders are known to cooperate, their
shareholdings are aggregated by Sundqvist et al. We have followed their definitions of
ownership coalitions. After the collection of ownership data, the sample consists of 195 firms
and 1461 firm years.
To identify control block trades, we collect information on the identity of the largest
voteholder coalition in each firm year. When there is a change in the identity of the largest
voteholder, we collect information about the changes from the publications by Sundqvist
(1985-1993) and Sundin and Sundqvist (1994-1998) and the Affärsdata database. Affärsdata
contains Swedish business articles and news from 1981 until today. It now covers 90 sources.
We identify 130 control changes (change in the identity of the largest voteholder) in our
sample and classify them as due to block trades (62 obs), reconstructions upon financial
distress (12 obs), accumulation of shares by an outsider through the acquisitions of minority
blocks and/or open market trade (45 obs) and open market divestment by the controling
owner (11 obs). Since we are interested in control changes where the incumbent and an
outsider negotiate the control transfer, we focus on the 62 block trades. The other control
changes do not involve a negotiated control transfer between the incumbent and the outsider
gaining control.
10
We also identify 20 indirect control changes due to block trades (14 obs), non-partial
takeover (2 obs), and accumulation of shares by an outsider (4 obs). We define a control
change in firm B as indirect when there is a control change in firm A and firm A controls firm
B. We do not define the indirect ownership change in firm B as a control change (non-partial
takeover or block trade), since the ownership in firm B does not change. The takeover activity
within Swedish pyramids has been analyzed by Holmen and Knopf (2004) and Doukas,
Holmen, and Travlos (2002). A first rough estimate of successful non-partial tender offer
activity is also collected from the publications by Sundqvist (1985-1993) and Sundin and
Sundqvist (1994-1998) since they report all delistings. However, they do not distinguish
among actual non-partial takeovers, minority buyouts, and going private transactions. We are
only interested in transactions where there has been a change in control, i.e. not in minority
buyouts and going private transactions. We use daily newspapers to separate going private
transactions from non-partial takeovers after successful tender offers.12 Moreover, we
examine the ownership structure of the firm in the years preceding the delisting.
In Sweden, almost all non-partial takeovers are preceded by a public tender offer
(Bergström and Rydqvist, 1989). According to Swedish law, any shareholder or group of
shareholders in the target that has 10% of the shares can block a legal merger. Therefore, the
terms of the tender offer are often negotiated between the bidder and the large shareholders of
the target before the public announcement. When the large blockholders have accepted the
terms of the bid, a public tender offer is made for all target shares, including the blockholders’
shares (Rydqvist, 1993). Most bids are non-partial and contingent on 90% of the shareholders
accepting the offer.
The fact that we only look at successful non-partial tender offers suggests that all
blockholders ultimately accepted the offer, sometimes after a revision of the offer. Some non-
12
Part of this data was provided by Clas Bergstrom and Kristian Rydqvist.
11
partial takeovers start with a hostile tender offer, i.e. an offer that has not been discussed with
the blockholders in the target. The bidder then negotiates with the blockholders in the target
and the offer might be revised. If a rival bidder offers a higher price, the blockholders in the
target are not forced to sell to the initial bidder, even if they have agreed on the terms of the
initial offer. However, since the terms of most tender offers are typically negotiated between
the bidder and the blockholders in the target before they are made public, we do not observe
many failed bids. On the other hand, failed negotiations are common, i.e. the bidder and the
blockholders in the target start negotiations but do not reach an agreement and we do not
observe a tender offer. Furthermore, blockholders in potential target firms may negotiate with
several potential bidders before reaching an acceptable offer, or deciding not to sell.
Our final takeover sample consists of 35 successful non-partial tender offers. Seven
successful tender offers were preceded by a block trade, i.e. an outsider acquired the
controling block from the incumbent and then made a tender offer for the remaining shares.
We classify these seven observations as block trades since control was transferred at the block
trade, not at the tender offer. Thus, our final non-partial tender offer sample includes 28
observations. Together with block trades, control changes due to financial distress,
accumulation of shares by an outsider, and divestment in the open market, we have 158
control changes, 22 percent of which (28 of 158) are public tender offers. This is similar to
the 27 percent reported by Schmid for the US in the year 2000. In our total sample, 24 firms
were subjected to minority buyouts and four firms were delisted due to bankruptcy.
Table 1 panel A summarizes our sample. On average, our sample roughly contains
100 firms each year and roughly comprises 70 percent of the Swedish stock market
capitalization. On average, 2 firms are taken over by non-partial tender offers each year and
4.5 firms were subjected to control block transfers each year.
12
2.3.
Descriptive Statistics
In Table 2, we provide descriptive statistics for the 195 firms and 1461 firm years in our
sample. The largest block of equity on average contains 33.5 percent of the firm’s cash flow
rights (Unadj Equity). When the controlling owners’ net investment in the firm is adjusted for
pyramid structures, the average controlling owner holds 26.5 percent of the firm’s cash flow
rights. If firm B is controlled by firm A, Equity in firm B is adjusted for pyramid structures by
multiplying the ultimate owner’s fraction of cash flow rights in firm A with firm A’s fraction
of cash flow rights in firm B. This is in line with e.g. Claessens et al. (2002). However, we
define equity ownership for the largest voteholder in each firm and do not use any cut off
levels. Claessens et al. (2002) define firms where no shareholder holds 10 percent of the
voting rights as having dispersed ownership. In only 22 observations in our sample (1.5% of
the sample) is the largest voting block smaller than 10 percent. We control for holdings
through multiple control chains according to Faccio and Lang (2002). The average ratio
between Equity and Unadj Equity is 2.282. The median is 1.000 since less than 50 percent (32
percent) of the firms are part of a pyramid structure (see panel B). The average controlling
owner holds 50.8 percent of the voting rights (Votes).13 The difference in excess of pyramid
structures [förstår inte riktigt detta] is due to the high frequency of dual class shares. More
than 80 percent of the firms in our sample have dual class shares (see panel B). The median
controlling shareholder has almost 50 percent more voting rights than cash flow rights (Votes/
Unadj Equity) and almost twice as many voting rights as pyramid adjusted equity (Votes/
13
We define Votes as the ultimate owner’s fraction of voting rights in the firm, independent of pyramid
structures. Claessens et al. (2002) define Votes as the fraction of voting rights in the weakest link in terms of
voting rights in the pyramid. We have run all our tests with the definition of Claessens et al. (2002). Votes
become smaller for about half of the pyramidal firms. The block trade results reported below virtually remain
unchanged. The tender offer results become somewhat less statistically significant, however.
13
Equity).14 The median controlling owner has been the largest voteholder for 12 years
(Tenure).
We also define a cross-ownership dummy (unreported). For firm B, this dummy is
equal to one if Firm A controls firm B and firm B owns shares in firm A, and zero otherwise.
Only 80 observations in our sample (5.5%) were involved in cross-ownership. Including a
cross-ownership dummy in the hazard models reported in the next section does not affect any
of the other results and the dummy per se is insignificant in all models.
The median firm has assets with a book value of 1482 million SEK (Size), is 48 years
old (Age), generates a return of 3.4 percent on total assets (Profitability), has financed 23.1
percent of the total assets with long-term debt (Leverage), has 57 percent of its total assets in
short-term assets (Liquidity) and has a Tobin’s q of 1.13. Tobin’s q is defined as the sum of
the market value of equity and the book value of total debt divided by the book value of total
assets.
The sample is split according to whether the firm was subject to a control change in
1985-1998. Successful non-partial tender offers and block trades are defined as control
changes. All years within the same ownership spell (N=396) prior to a successful non-partial
tender offer or a block trade are classified as belonging to a firm experiencing a control
change. An ownership spell is defined as all firm years with the same controlling owner.
Thus, new ownership spells begin at control block transfers and other control changes.15 At a
non-partial tender offer, the firm is delisted and no new ownership spell begins.
14
Faccio and Lang (2002) and Giannetti and Simonov (2006) analyze the ratio of voting rights and cash flow
rights. Claessens et al. (2002) analyze the difference between voting rights and cash flow rights. In our empirical
work, we take the natural logarithm of the ratios in order to reduce the impact of extreme values. Using the
differences generates similar but statistically somewhat weaker results.
15
We have 195 firms, 62 control block transfers, and 88 other ownership changes resulting in 345 ownership
spells. The 62 block trades are related to 48 firms. Thus, some firms experienced more than one block trade
during the sample period. Furthermore, 7 firms experienced a block trade before becoming a non-partial takeover
target. Note, however, that if it is the shareholder gaining control by the block transfer that makes the non-partial
tender offer for remaining shares, the tender offer is not classified as a takeover but as a going private
transaction.
14
The mean and median difference tests suggest that the controling owners in firms
experiencing a control change have less Votes. The median difference test also suggests that
controling owners in firms experiencing a control change have less total excess votes (Votes/
Equity). There is no significant difference for the other ownership variables16 and the
descriptive statistics do not suggest any significant relation between control tenure and control
changes. The firms experiencing control changes are smaller but of similar age as those not
experiencing control changes. Firms experiencing control changes are less profitable
(Profitability) according to the median difference test. The other difference tests are
insignificant.
In panel B, we report statistics for four binary variables. More than 80 percent of the
firms have dual class shares. In 29.4 percent of the firms, the controlling shareholders hold all
A-shares and only the B-shares are traded on the Stockholm Stock Exchange. The controlling
shareholder holds all A-shares in roughly 40 percent of the dual class firms. Almost one third
of the firms are controlled by a pyramid structure. The difference tests suggest that dual class
shares increase the probability of a control change while there is no significant difference for
pyramids.
The relative magnitude of private benefits does not only depend on the size of the
controlling block but also on the distribution of the remaining shares. To proxy for the
distribution of outside shareholdings, we define a dummy variable (Outside Block) equal to
one if the second largest shareholder holds more than 10 percent of the voting rights, and zero
otherwise. In 43.7 percent of the firms does an outside shareholder hold 10 percent of the
voting rights or more. The descriptive statistics suggest that an outside block holder increases
the probability of the firm experiencing a control change.
16
Note that mean differences are tested on the natural logarithm of Unadj. Equity/ Equity, Votes/ Unadj. Equity,
Votes/ Equity, Tenure, Firm Size, Firm Age and Tobin’s q.
15
In panel C, the firms experiencing a control change are split by whether they are nonpartial tender offer targets or subject to control block transfers. All ownership spells prior to
the non-partial tender offer and block trades are classified accordingly. The mean difference
tests indicate that the ownership spells associated with non-partial tender offers have larger
Unadj. Equity, Unadj. Equity/ Equity, Votes, Votes/ Equity and Tenure but less Votes/ Unadj
Equity. The median difference test suggests that the controlling owners in tender offer targets
have less Equity than owners of block trade targets. Compared to firms experiencing control
block transfers, tender offer targets are also larger (Size), older (Age), more profitable
(Profitability), and have higher Liquidity but lower Leverage. There are no significant
differences in terms of Tobin’s Q. Finally, the difference tests in panel D indicate that nonpartial tender offer targets are more likely to have Dual Class Shares and be Pyramid firms. It
is also more likely that the controlling owners hold all A-shares in tender offer targets as
compared to ownership spells associated with control block transfers (Controlling owner
holds all A-shares).
2.3.
Statistics on the bidders in the control changes
In table 3 panel A, we present some statistics on bidders in non-partial tender offers and block
trades, respectively. Half of the bidders in non-partial tender offers are Swedish entities. The
frequency of Swedish bidders in block trades is significantly higher, amounting to almost 76
percent. Among the Swedish bidders, there are no statistically significant differences between
bidders in non-partial tender offers and block trade bidders in terms of being a listed firm.
Among the listed bidders, it is more likely that the bidder will be a pyramidal firm in block
trades, as compared to non-partial tender offers. The bidder is defined as being a pyramidal
firm if it is controlled (largest voteholder) by another firm listed on the Swedish stock market.
16
Gaining control of a firm by a block trade requires less capital as compared to a
non-partial tender offer. As a proxy for the bidder’s size, we present the average and median
market value of equity for the listed bidders in panel B. It is difficult to define and collect the
size or wealth for bidders that are non-listed entities or individuals. The averages and medians
do not suggest that bidders in block trades are statistically smaller than bidders in non-partial
tender offers.
2.4. Announcement returns
For illustrative purposes, we present statistics on the announcement returns at non-partial
tender offers and block trades, respectively, in table 4. The announcement returns are
estimated as the change in share price from five days before to five days after the first
announcement of the control change.17 The announcements are collected from the Affärsdata
database. We are able to collect the necessary data for 25 non-partial tender offers and 56
negotiated block trades.
The average and the median tender offer in our sample are associated with
announcement returns above 25 percent. These numbers are similar to the abnormal price
changes at tender offers in the US reported by e.g. Jensen and Ruback (1983). The average
announcement return at a negotiated control block transfer is 5 percent. The median return at
block trades is only 1.6 percent, but it is still statistically different from zero. Positive
abnormal returns have also been reported for block trades in the US (Holderness, 2003). Even
though minority shareholders are harmed in some block trades (large negative announcement
returns), the average and the median share price increases suggest that improved management
is at least part of the source of the gains in block trades (Berglöf and Burkart, 2003).
17
It would be interesting to also explore the control block premium. However, it is not possible to collect the
prices at which the control block is traded since this is done outside the stock-market and the parties are obliged
to make this information public.
17
3.
Survival analysis methodology
Survival analysis methodology is well-suited to analyses of factors explaining the likelihood
of a change in firm control (e.g. Cameron and Trivedi, 1996).18 In our context, the changes in
control constitute an instance of competing risks.19 We choose to look at two competing risks
 the change in the controlling owner of a firm due to a transfer of the controlling block of
shares and the change due to a non-partial tender offer. The observation “spell” for a firm is
the time until there is a change in the controlling owner or the end of the observation period
has been reached. Therefore, the spells ending up with a control transfer due to other causes
than block trade or a non-partial tender offer are treated as censored, resulting in the
beginning of a new observation spell for the firm. As a result, at each point in time within a
spell, firms can be considered to be in one of three mutually-exclusive states  the status-quo
state, the state of a non-partial tender offer, and the state of block trade. Over time, all firms
are exposed to the chance of transiting from the status-quo state to one of the two alternative
states – block trade or non-partial tender offer.
For the present analysis, we adopt an independent competing risks specification. In an
independent competing risks model, the hazard associated with a non-partial tender offer is
assumed to be independent from that of a block trade, conditional on the effects of the
independent variables.20 The estimation of an independent competing risks model is thus
18
Survival analysis deals with the modeling of time-to-event data, also known as transition data (or survival time
data or duration data). Comprehensive treatments of these models can be found in Cox and Oakes (1984),
Lancaster (1990), and Blossfeld and Rohwer (1995).
19
It should be noted that the absence of control change can be considered as a residual risk.
20
An important advantage of independent competing risks models is their computational tractability. Extensions
to allow for correlated risks have been introduced in the literature, but have not yet been used to any
considerable extent in applied work. In fact, the assumption of conditional independence is not very unrealistic
given that if a particular covariate affects the hazard of more than one event, and it is in the model, then its effect
is “controled for”. We use a large number of covariates, many of which vary with or are a function of time,
which would be likely to mitigate the potential conditional dependence between the risks involved. In addition, if
we assume the dependence to be due to a common unit effect, the inclusion of an “unobserved heterogeneity”
term in our models would also ensure conditional independency of risks.
18
exactly equivalent to the estimation of separate models for each risk, while treating control
transfers due to the other risk(s) and the situations of no control transfer as censored.21
The advantage of the adopted methodology over more traditional Ordinary Least
Squares or multinomial regressions is the ability of the survival analysis to directly account
for the sequential nature of the data, and its ability to handle censoring and incorporate timevarying covariates (Jenkins, 2005).
In our approach, the hazard rate captures the chances of a non-partial tender offer or a
block trade within a year, conditional on survival (no such event) up to that point.
The unconditional probability of not experiencing event k (where k is takeover or
block trade) from the beginning of the observation period (t=0) until time t>0 for firm i in our
sample is equal to λik(t)dt, where λik(t) is the hazard function defined by the equation
lim
dt  0
Pr t  dt  Ti  t Ti  t 
dt
 i k (t ) ,
and dt is an infinitesimal interval of time. Alternatively, λik(t)dt can be interpreted as an
unconditional probability of a firm i experiencing an event in a tiny interval of time [t, t+dt].
The (instantaneous) hazard rate function for firm i at time t>0 is assumed to take the
proportional hazards form
i k (t )  0 k (t ) exp( X it   ) ,
where λ0k(t) is the unknown baseline hazard at time t which may take a parametric or nonparametric form, and Xit is a vector of covariates summarizing observed differences between
firms at time t and β is a vector of parameters to be estimated.
21
For continuous time models, the log-likelihood for a model with multiple destinations has a separability
property meaning that a multiple-destination survival model can be estimated by estimating a number of singledestination models separately, one for each destination (competing risk). With the discrete data, as in our case,
an independent competing risk model can still be estimated by setting up the likelihood function as the
likelihood for a standard multinomial logit model applied to re-organized data (Allison, 1982). For intervalcensored data with a relatively small interval hazard, it is common to assume that the continuous time hazard rate
was constant within each interval.
19
Note that the probability density function in our context is a time to failure function
that gives the instantaneous probability of the event. That is, in a survival experiment where
the event is a non-partial tender offer, the value of the density function at time T is the
probability of a firm subject to a tender offer precisely at time T. This differs from the hazard
function which gives the probability conditional on a firm having survived to time T.22
Although the survival of firms occurs in continuous time, our data calls for the
discrete time specification of the model given that the spell length is observed only in oneyear intervals. In other words, the underlying continuous durations are only observed in
disjoint time intervals [0 = a0, a1), [a1, a2), [a2, a3), … , [ak-1, ak = ). Our covariates (e.g.
firms’ characteristics) may vary between time intervals but are assumed to be constant within
each of these.
In the discrete case, hazard of exit to a particular destination k in the jth interval is
given by

h j k ( X it )  Pr{T  a j 1 , a j  T a j 1 } .
In our case, all intervals have the length of one year, so that the recorded duration for
each firm i corresponds to the interval [ti-1, ti). Firms are recorded as either experiencing a
tender offer or a block trade during the interval, or as still remaining in status-quo. The former
group, contributing completed spell data, is identified using censoring indicator ci=1. For the
latter group, contributing right-censored spell data, ci=0. The number of intervals comprising
a censored spell is here defined to include the last interval within which the firm is observed.
The log-likelihood for each event k can be written in terms of the hazard function as:
ti 1
n 


 ti


LogLk   ci loghikt ( X ikti ) 1  hsk ( X is )  (1  ci ) log 1  hsk ( X is ) ,
i 1 
s 1


 s 1


22
In this paper, we sometimes use the terms “hazard rate of tender offer/block trade” or “tender offer/block trade
risk” instead of “tender offer/block trade probability” since what we model is the probability per time unit that a
firm that has survived to the beginning of the respective interval will be taken over or that the controling
shareholder will sell her block of shares in that interval.
20
where the discrete time hazard in the jth interval is
aj

h jk ( X ij )  1  exp  exp( X ij    jk ) with  jk  log  0 k ( )d .


a
j 1
This specification allows for a fully non-parametric baseline hazard with a separate
parameter for each duration interval. Alternatively, the γjk may be described by some semiparametric or parametric function, e.g. θk(j).
If we define an indicator variable yikt=1 if firm i experienced an event during the
interval [t-1,t], and yikt=0 otherwise, the log-likelihood can be rewritten in sequential binary
response form:

ti

log Lk   y ikj log h jk ( X ij )  (1  y ikj ) log 1  h jk ( X ij ) .
n
i 1 j 1
This is one specification of log-likelihood which we estimate for each event.
Our second specification incorporates a Gamma distributed random variable to
describe unobserved (or omitted) heterogeneity between individuals.
The instantaneous hazard rate is now specified as
ik (t )  0 k (t ) i exp( X it   k )  0 k (t ) exp( X it   k  log( i )) ,
where εi is a Gamma distributed random variable with unit mean and variance σ2 ≡ v, and the
discrete-time hazard function is now

h jk ( X ij )  1  exp  exp( X ij  k   jk  log( i )) .


The likelihood functions of the second model are:
n
LogLk   log1  ci Ai k  ci Bik 
i 1
where
ti



Aik  1  v  exp  X ij  k   k ( j ) 


j 1


 (1 / v )
and
21
ti 1



Bik  1  v  exp  X ij  k   k ( j ) 


j 1


 (1 / v )
 Ai , if t i  1, or  1  Ai , if t i  1 ,
where θk(j) is a function describing duration dependence in the hazard rate. The
log-
likelihood function of the first model is the limiting case as v0.
4.
Empirical Results
In this section, we report the results of estimations of discrete time proportional hazards
regression models with the hazard rate of control changes as the dependent variable.23 First,
we estimate competing risk models for non partial tender offers and block trades,
respectively, for the 1985-1999 period. A mandatory bid rule was introduced in 1999 with
direct implications for the choice of control transfer mode and the ability of controlling
shareholders to transfer private benefits of control. Despite the fact that our model
specification is no longer valid in the post-MBR period, we do expect to find weaker
relationships between ownership proxies and the probability of block trade. Therefore, we reestimate the block trade models for the 1999-2005 period.
4.1. The probability of a non-partial tender offer
In this section, we estimate the risk of a non-partial tender offer using the hazard regressions
models. We include several independent variables. Our first hypothesis deals with the
ownership fraction of the largest shareholder and, therefore, we include the natural logarithm
of the largest shareholder’s voting fraction (Ln(Votes)). To capture the effect of separation of
voting rights from cash flow rights, we include two variables. The effect of dual class shares
is captured by the natural logarithm of the ratio of the largest shareholder’s vote fraction and
23
The models are estimated using the pgmhaz8 procedure of STATA 8.2. For each specification, two models are
estimated by maximum likelihood methods: (1) the Prentice-Gloeckler (1978) model; and (2) the PrenticeGloeckler (1978) model incorporating a gamma mixture distribution to summarize unobserved individual
heterogeneity, as proposed by Meyer (1990). We estimate a fully non-parametric specification for the baseline
hazard with four interval-specific baseline hazards.
22
the unadjusted equity fraction (Ln(Votes/ Unadj Equity)). The effect of pyramid structures is
captured by the natural logarithm of the ratio between the largest shareholder’s unadjusted
equity fraction and the pyramid adjusted equity fraction (Ln(Unadj Equity/ Equity)). We split
total separation into two parts in order to empirically investigate whether dual class and
pyramids are indeed perfect substitutes or whether they have different implications in terms of
the market for corporate control (see e.g. Faccio and Lang, 2002).
Based on Stulz (1988), we test whether firm Leverage is related to the hazard rate of
control changes. By increasing firm leverage, the controlling shareholder can increase his
control of voting rights, thereby hindering takeovers. Firm Size, Profitability (ROA) and
Liquidity are included as control variables. In addition, the Outside Block dummy is included
to capture the distribution of outside shareholdings. These variables are roughly the same
control variables as those used by e.g. Palepu (1986) and Ambrose and Megginson (1992)
when estimating the probability of non-partial takeovers. Bohren, Priestly, and Odegaard
(2005) show that the probability of a shareholder closing an equity position is a function of
how long the owner has held this position. On this basis, we also include the largest
shareholder’s control Tenure as an independent variable.24
The results are reported in Table 5.25 Both M1 and M2 models provide support for
our first hypothesis that the likelihood of public tender offers increases with the largest
shareholder’s ownership fraction.26 The use of dual class shares (Ln(Votes/ Unadj Equity)) is
significantly negative at the 5 percent level without unobserved heterogeneity (M1) and at the
10 percent level when controlling for unobserved heterogeneity (M2). This result is in line
with our third hypothesis. The larger the private benefits, approximated by the separation of
24
In all estimated models, we have substituted Tenure with firm age. The results remain virtually unchanged.
Since the variables are highly correlated, we do not use both in the reported estimations.
25
In unreported tests, we estimate models for the pooled hazards of takeovers and block trades. In these models,
neither the controlling owner’s voting fraction nor the separation of voting rights from cash flow rights affect the
probability of a control change.
26
In unreported regressions, we also include Votes squared but we do not find any significant non-linear relation
between the largest shareholder’s voting fraction and the probability of a control change.
23
voting rights from cash flow rights, the less likely is the event of a non-partial tender offer
(Burkart et al., 2000). Furthermore, it appears as if dual class shares work as an anti-takeover
device (Grossman and Hart, 1988; Jarrell and Poulsen, 1988).
The pyramid variable (Ln(Unadj Equity/ Equity)) is positively significant in M1,
however. This result suggests that a larger pyramidal wedge leads to a higher tender offer
risk. However, Ln(Unadj Equity/ Equity) is insignificant in M2 where we control for
unobserved heterogeneity. It is important to mention that takeovers within the same pyramid
are not included among the non-partial tender offers, since they are defined as going private
transactions. Takeovers within the pyramids do not result in a change in the identity of the
controlling owner. It appears as if dual class shares and pyramids are not perfect substitutes in
terms of the market for corporate control. Dual class shares appear to be used, as least partly,
as a takeover defense. Pyramids, on the other hand, might be used to facilitate tunneling and
appear to have no clear effect on the market for corporate control (Johnson, La Porta, Lopezde-Silanez and Shleifer, 2000).
The results in M2 suggest that larger firms are actually more likely (at the 10 percent
level) to be subject to non-partial tender offers. We return to this result below. Consistent with
Stulz (1988), leverage is negatively significant in the tender offer model. The controlling
owner may use leverage to increase his control of the firm when the private benefits are
substantial, ceteris paribus. Tenure is also negatively significant, i.e. the longer the firm has
had the same controlling shareholder, the less likely is a non-partial tender offer. Private
benefits of control possibly increase with control tenure and therefore, the potential loss of the
private benefits reduces the likelihood of a non-partial tender offer with control tenure. All
other variables are insignificant.
4.2. The probability of a block trade
24
We now turn to block trades. The same models are estimated with the risk of a control block
transfer as the dependent variable. The results are reported in table 6. Consistent with our
second hypothesis, the largest shareholder’s voting fraction significantly reduces the
likelihood of a block trade. Furthermore, the separation of voting rights due to dual class
shares is positively significant, consistent with our fourth hypothesis. Once more, the results
for the pyramid variable (Ln(Unadj Equity/ Equity)) differ from those for the dual class shares
variable. The pyramid variable is insignificantly negative. Thus, also in terms of block trades,
it appears as if pyramids and dual class shares have different implications.
Larger firms are less likely to experience block trades. The tender offer results
suggest that larger firms might be more likely to experience a tender offer. Generally, we
expect that larger firms are less likely to experience both a tender offer and a block trade since
the number of potential bidders should be lower for larger firms. More capital is needed in
order to gain control of a larger firm. However, our sample contains the largest firms in
Sweden, i.e. small firms are not included in the sample. Among the larger firms (with
Swedish standards), it appears as if the largest firms are more likely to be acquired by a
foreign bidder. And foreign bidders tend to make tender offers instead of block trades (see
table 3). Foreign bidders might be less likely to make a block trade since the incumbent’s
private benefits are not transferable to foreigners. Thus, for tender offers, it appears as if
increased firm size may have two contrary effects. A domestic bidder becomes less likely
with increasing firm size while a tender offer from a foreign bidder becomes more likely.
The other control variables are insignificant. Leverage and Tenure are negatively
significant in the tender offer models. The different results could be explained if Leverage and
Tenure are correlated with private benefits (Stulz, 1988). At a block trade, the private benefits
can be traded and we do not expect to find a negative relation between Leverage and Tenure,
respectively, and the risk of a block trade. However, at a non-partial tender offer, the private
25
benefits are internalized by the bidder and therefore, Leverage and Tenure reduce the
likelihood of a successful non-partial tender offer.
C. The probability of a block trade after the introduction of a mandatory bid rule
In 1999, a mandatory bid rule was introduced in Sweden. In our 1985-1998 sample, almost
two-thirds of the incumbents held more than 40 percent of the voting rights, i.e. a block that
would trigger the mandatory bid rule. In the actual block trades 1985-1998, half the bidders
held more than 40 percent of the voting rights after the control change (see table 7, panel A).
Almost two-thirds of the bidders held more than 30 percent of the voting rights after the
control change. The median bidder in both non-partial tender offers and block trades did not
hold any shares in the firm before the control change.
Not surprisingly, the statistics for the incumbents are similar. Almost 50 percent of
the incumbents in the actual block trades 1985-1998 held more than 40 percent of the votes
and almost 60 percent held more than 30 percent of the votes before the control change (see
table 7, panel B). The median incumbent in block trades did not hold any shares after the
control change.
A majority of the block trades 1985-1998 would have triggered the mandatory bid
rule had it been in place. The introduction of a mandatory bid rule has at least two
implications on the frequency of block trades. First, if the incumbents hold more than 40 (30)
percent of the voting rights, this prevents a value decreasing change of control since it forces
the bidder to internalize any negative externalities. Since the bidder must acquire the whole
firm, he is never willing to take control of the firm unless a control transfer is efficient
(Berglöf and Burkart, 2003). Second, even efficiency improving block trades might not take
place since the bidder must extend the control premium to all shareholders. Only when the
26
efficiency gains are quite large will the control change take place as a non-partial tender offer.
Both these effects should reduce the relative frequency of block trades.
We construct a sample of large Swedish non-financial firms for the 1999-2005
period. The sample contains 140 firms and 713 firm year observations. We follow the same
procedure as for the earlier sample and find 20 block trades within this sample.
We hypothesize that our proxies for the relative magnitude of the private benefits,
separation of voting rights from cash flow rights and a small controlling block, are associated
with block trades with less efficiency improvements. Thus, the positive relation between the
likelihood of a block trade and separation of voting rights from cash flow rights should be
weaker after 1998. Similarly, the negative relation between the likelihood of a block trade and
the size of the controlling block should also be weaker after 1998.
We report hazard rate models for control block transfers in the 1999-2005 sample in
table 8. All ownership variables are insignificant. These results are interpreted as if block
trades with a substantial relative magnitude of private benefits (large separation of voting
rights from cash flow rights and a small controlling block) do not take place after 1998.
Therefore, we no longer find significant relationships between these proxies and the
likelihood of a block trade.27
5.
Summary and Conclusion
In this paper, we attempt to fill the gap in the corporate control literature by empirically
investigating the effect of the size and structure of the controlling party’s equity position on
the choice of control transfer mode. Following Burkart et al. (2000), we argue that the choice
27
In unreported tests, we have estimated hazard models for the risk of non-partial tender offers in the 1999-2005
period. There are 31 non-partial tender offers in the 1999-2005 sample. However, it is not clear to us how the
introduction of a mandatory bid rule should affect the determinants of a tender offer probability. However, we
note that the estimated coefficients for the ownership variables are statistically weaker than in the models
reported in table 5.
27
between block trade and non-partial tender offer transfer modes is likely to be affected by the
interdependence of security benefits and private benefits attached to the controlling ownership
stake. Given that private benefits tend to be internalized in a non-partial tender offer, the
incentive to choose this transfer mode will be lower relative to the block trade mode when the
private benefits are large. We argue that the magnitude of private benefits is likely to increase
relative to security benefits when the controlling owner has a smaller stake in a company and
when she enjoys more control rights relative to cash flow rights (e.g. through the use of dual
class shares). Our results support this conjecture. The likelihood of a non-partial tender offer
increases with the largest shareholder’s ownership stake, while the opposite is true for the
probability of the block trade transaction. Moreover, the greater proportion of control rights to
cash flow rights of a controlling owner has a positive effect on the likelihood of block trade
and a negative effect on the probability of a non-partial tender offer.
Our analysis generates three empirical implications. First, the results emphasize the
importance of investigating block trades and tender offers as two competing events.
Combining these control change events in a single model would lead to obscuring the
information conveyed by the choice of transfer mode.
Second, dual class shares and pyramids are not perfect substitutes in terms of the
market for corporate control. But they are often treated as perfect substitutes in the literature.
Dual class shares appear to be at least partly used as a takeover defence. Pyramids, on the
other hand, appear to have no systematic effects on the market for corporate control.
Third, our results suggest that separation of voting rights from cash flow rights might
limit the efficiency of the market for corporate control. The prevalence of block trades in the
presence of greater private benefits of control highlights the disadvantages of this control
transfer mode in terms of incentive alignment between the buyer and the remaining dispersed
28
shareholders. At a block trade, the bidder does not have to internalize the negative
externalities as she must do at a non-partial tender offer.
29
References
Allison, P. (1982), Discrete time methods for the analysis of event histories, pp. 61-98, in S.
Leinhardt (ed) Sociological Methodology 1982, Jossey-Bass, San Francisco.
Ambrose, B. W. and W. L. Megginson (1992) The role of asset structure, ownership structure,
and takeover defences in determining acquisition likelihood, Journal of Financial and
Quantitative Analysis, 27, 575-589.
Barak, R. and B. Lauterbach (2007) Estimating the private benefits of control from block
trades: Methodology and Evidence, working paper Bat Ilan University.
Barclay, M. and C. Holderness (1989) Private benefits of control of public corporations,
Journal of Financial Economics, 25, 371-395.
Bebchuk, L. A. (1994) Efficient and Inefficient Sales of Corporate Control, Quarterly Journal
of Economics, 109, 957-993.
Bebchuk, L. A., R. Kraakman, and G. Triantis (2000) Stock pyramids, cross-ownership, and
dual class equity: The creation and agency costs of separating control from cash flow rights,
in R. K. Morck (ed), Concentrated Corporate Ownership. NBER, University of Chicago
Press.
Berglöf, E. and M. Burkart (2003) European takeover regulation, Economic Policy, 171-213.
Bergström, C. and K. Rydqvist (1989) Stock price reactions to tender offers in Sweden, SNS
Occational Papers No. 11.
Bethel, J. E., J. P. Liebeskind, and T. Opler (1998) Block share purchases and corporate
performance, Journal of Finance, 53, 605-634.
Blossfeld, H.-P., and Rohwer, G. (2002) Techniques of Event History Modeling: New
Approaches to Causal Analysis, second edition, Lawrence Urbaum Associates, Mahwah NJ.
Bohren, O., R. Priestly, and B. A. Odegaard (2005) The duration of equity ownership,
working paper Norwegian School of Management.
Burkart, M., D. Gromb, and F. Pannunzi (2000) Agency Conflicts in Public and Negotiated
Transfers of Corporate Control, Journal of Finance, 55, 647-677.
Cameron, A. C. and P. K. Trivedi (1996) Count data models for financial data, in G. S.
Maddala and C. R. Rao (ed), Handbook of Statistics, Vol 14, Statistical Methods in Finance.
North-Holland, Amsterdam.
Claessens, S., S. Djankov, J. Fan, and L. H. P. Lang (2002) Disentangling the incentive and
entrenchment effects of large shareholdings, Journal of Finance 57(6), 2741-2771.
Cox, D. and Oakes, D. (1984), Analysis of Survival Data, Chapman Hall, London.
30
Denis, D. K. and J. J. McConnell (2003) International Corporate Governance, Journal of
Financial and Quantitative Analysis, 38, 1-36.
Doukas, J. A., M. Holmen, and N. Travlos (2002) Diversification, ownership and control of
Swedish corporations, European Financial Management, 8, 281-314.
Dyck, A. and L. Zingales (2004) Private benefits of control: An international comparison,
Journal of Finance 59, 537-600.
Faccio, M., L. Lang, and L.H.P. Young (2001), Dividends and Expropriation, American
Economic Review, 91(1), 54-78.
Faccio, M. and L. H. P. Lang (2002) The ultimate ownership of Western European
corporations, Journal of Financial Economics 65, 365-395.
Franks, J. and C. Mayer (2001) Ownership and Control of German Corporations, Review of
Financial Studies, 14, 943-977.
Fristedt, D., A. Sundin, and S. I. Sundqvist (2003) Owners and Power in Sweden’s Listed
Companies, Dagens Nyheter, Stockholm.
Fristedt, D., and S. I. Sundqvist (2004-2006) Owners and Power in Sweden’s Listed
Companies, Dagens Nyheter, Stockholm.
Giannetti M., and A. Simonov (2006) Which Investors Fear Expropriation? Evidence from
Investors' Portfolio Choices, Journal of Finance, 61, 1507-1547
Grossman S. and O. Hart (1980) Takeover bids, the free-rider problem, and the theory of the
firm, Bell Journal of Economics, 42-64.
Grossman, S. and O. Hart (1988) One share - one vote and the market for corporate control,
Journal of Financial Economics, 20, 175-202.
Hasbrouck, J. (1985) The characteristics of takeover targets: q and other measures, Journal of
Banking and Finance, 9, 351-362.
Helwege, J., C. Pirinsky, and R. M. Stulz (2007) Why do firms become widely held? An
analysis of the dynamics of corporate ownership, Journal of Finance, 62, 995-1028.
Holderness, C. G. (2003) A survey of blockholders and corporate control, Economic Policy
Review 9, 51-64.
Holmén, M. and J. D. Knopf (2004) Minority shareholder protection and the private benefits
of control for Swedish mergers, Journal of Financial and Quantitative Analysis, 39, 167-191.
Jarrell, G. A. and A. B. Poulsen (1988) Dual-class recapitalizations as antitakeover
mechanisms: The recent evidence, Journal of Financial Economics, 20, 129-152.
Jenkins, S. P. (2005) Survival analysis, draft book manuscript, Univerity of Essex (available
at http://www.iser.essex.ac.uk/teaching/degree/stephenj/ec968/pdfs/ec968lnotesv6.pdf).
31
Jensen, M. and R. Ruback (1983) The market for corporate control, Journal of Financial
Economics 11, 5-50.
Johnson, S., R. La Porta, F. Lopez-de-Silanez, and A. Shleifer (2000) Tunneling, American
Economic Review 90, 22-27.
La Porta, R., F. Lopez-de-Silanes, and A. Shleifer (1999) Corporate ownership around the
world, Journal of Finance 54, 471-517.
La Porta, R. F., F. Lopez-de-Silanez, A. Shleifer, and R. Vishny (2002) Investor Protection
and Corporate Valuation, Journal of Finance, 57, 1147-1170.
Lancaster, T. (1990) The Econometric Analysis of Transition Data. Econometric Society
Monographs, No. 17. Cambridge: Cambridge University Press.
Meyer, B. D. (1990) Unemployment insurance and unemployment spells. Econometrica
58(4): 757-782.
Morck, R., D. Wolfenzon, and B. Yeung (2005) Corporate Governance, Economic
Entrenchment and Growth, Journal of Economic Literature, 43, 655-720.
Nenova, T. (2003) The value of corporate voting rights and control: A cross-country analysis.
Journal of Financial Economics 68, 325-351.
Palepu, K. G. (1986) Predicting takeover targets: A methodological and empirical analysis,
Journal of Accounting and Economics, 8, 3-35.
Powell, R. G. (1997) Modelling takeover likelihood, Journal of Finance and Accounting, 24,
1009-1030.
Prentice, R. and L. Gloeckler (1978) Regression analysis of grouped survival data with
application to breast cancer data. Biometrics, 34: 57-67.
Rapp, M. S., B. Schwetzler, and M. O. Sperling (2008) Who is There When They Leave - An
Anatomy of Block Trades in a Bank-Based Economy. Working Paper (May 9, 2008).
Available at SSRN: http://ssrn.com/abstract=1100582
Rydqvist, K. (1993) The division of takeover gains in Sweden, CEPR working papers No. 31.
Rydqvist, K. (1996) Takeover bids and the relative prices of shares that differ in their voting
rights, Journal of Banking and Finance, 20, 1407-1425.
Schmid, F. A. (2002) Voting rights, private benefits, and takeovers, Federal Reserve Bank of
St Louis Review, 84, 35-46.
Shleifer, A. and R. W. Vishny (1986) Large shareholdings and corporate control, Journal of
Political Economy, 94, 461-488.
32
Stulz, R. (1988) Managerial control of voting rights: Financing and the market for corporate
control, Journal of Financial Economics, 20, 25-54.
Sundqvist, S. I., (1985-1993) Owners and Power in Sweden’s Listed Companies, Dagens
Nyheter, Stockholm.
Sundin, A., and S. I. Sundqvist (1994-2002) Owners and Power in Sweden’s Listed
Companies, Dagens Nyheter, Stockholm.
Walkling, R. A. (1985) Predicting tender offer success: A logistic anlysis, Journal of
Financial and Quantitative Analysis, 20, 461-478
Zingales, L. (1994) The Value of the Voting Right: A Study of the Milan Stock Exchange
Experience, Review of Financial Studies, 7, 125-48.
Zingales, L. (1995) Insider ownership and the decision to go public, Review of Economic
Studies, 62, 425-448.
33
Table 1. Frequency of successful non-partial tender offers and control block transfers among
large Swedish non-financial firms listed on the Stockholm Stock Exchange 1985-1998
Year
1.
Number
of sample
firms
2.
Percentage
of market
cap.
3.
4.
5.
6.
Number of
Percentage of
Number of
Percentage of
non-partial
sample firms
block trades
sample firms
tender offers
being subject to
in sample
subject to control
of sample
non-partial
firms
block trades
firms
tender offers
1985
80
60.3
0
0.0
3
3.7
1986
89
70.7
0
0.0
3
3.4
1987
91
66.9
0
0.0
3
3.3
1988
88
60.1
1
1.1
2
2.3
1989
95
73.1
1
1.1
2
2.1
1990
95
70.1
2
2.1
5
5.3
1991
92
71.2
0
0.0
4
4.3
1992
93
72.8
2
2.1
10
10.7
1993
95
78.4
2
2.1
1
1.1
1994
110
81.1
0
0.0
4
3.6
1995
118
78.3
5
4.2
7
5.9
1996
133
81.2
4
3.0
10
7.5
1997
141
75.6
1
0.7
5
3.5
1998
141
70.5
10
7.0
3
2.1
Note: In this table, we provide statistics on the number of sample firms, the frequency of successful non-partial
tender offers, and control block transfers among Swedish non-financial firms listed on the Stockholm Stock
Exchange 1985-2005. The sample consists of 195 firms and 1461 firm years. 28 firms were subject to successful
non-partial tender offers and 62 firms experienced control block transfers.
34
Table 2. Descriptive statistics large Swedish non-financial firms 1985-1998
Panel A: Continuous variables
Total Sample,
N=1461
Mean
Median
No Change of
controlling owner,
N=1065
Mean
Median
Change of
controlling owner,
N=396
Mean
Median
Unadj. Equity
0.335
0.300
0.338
0.310
0.328
Equity
0.265
0.210
0.269
0.214
0.254
Unadj Equity/
2.282
1.000
2.287
1.000
2.269
Equity1
Votes
0.508
0.500
0.515
0.510
0.492
Votes/
1.918
1.456
1.933
1.474
1.877
Unadj Equity1
4.455
1.906
4.679
1.833
3.853
Votes/ Equity1
Tenure1
28
12
28
12
28
Firm Size1
9132
1482
9879
1590
7122
60
48
55
48
72
Firm Age1
Profitability
0.037
0.034
0.038
0.035
0.033
Leverage
0.259
0.231
0.263
0.226
0.248
Liquidity
0.547
0.570
0.544
0.559
0.556
Tobin’s q1
1.445
1.130
1.422
1.127
1.507
1
mean difference tested on the natural logarithm of these variables.
Panel B: Binary variables
Total Sample,
N=1461
Dual Class
Shares
Controlling
owner holds all
A-shares
Pyramid
Outside Block
Difference
t-test
0.285
0.210
1.000
0.936
1.189
0.694
Ranksum
test
0.868
1.464
1.003
0.490
1.426
1.699*
0.183
1.898*
0.662
2.249
11
1210
47
0.029
0.248
0.600
1.137
0.569
0.289
3.213***
0.356
1.314
1.507
-0.949
-0.897
-2.013**
0.260
3.023***
0.386
2.106**
-0.190
-1.405
-0.198
Proportion
0.808
No Change of
controlling owner,
N=1065
Proportion
0.795
Change of
controlling owner,
N=396
Proportion
0.841
Proportion test
-1.966**
0.294
0.289
0.305
-0.610
0.322
0.437
0.312
0.422
0.348
0.477
-1.337
-1.907*
35
Difference
Panel C: Comparison firms subject to non-partial tender offers and firms subject to control block transfers
(Continuous variables)
Non-partial Tender Offer
Firms Subject to Control
Difference
Targets, N=182
Block Transfers, N=214
Mean
Median
Mean
Median
t-test
Ranksum
test
Unadj. Equity
0.349
0.305
0.309
0.250
2.024**
2.161**
Equity
0.240
0.134
0.266
0.230
1.223
-2.361**
Unadj Equity/
2.955
2.116
1.6685
1.000
6.822***
6.546***
Equity1
Votes
0.514
0.490
0.473
0.490
1.732*
1.534
Votes/
1.712
1.396
2.016
1.484
-2.605***
1.549
Unadj Equity1
Votes/ Equity1
4.739
4.082
3.099
1.918
4.777***
4.561***
Tenure1
33
40
24
6
4.739***
4.514***
Firm Size1
9681
2745
4945
989
3.827***
3.548***
Firm Age1
100
69
48
30
6.404***
5.545***
Profitability
0.042
0.034
0.025
0.025
2.379**
2.749***
Leverage
0.222
0.231
0.270
0.265
3.261***
2.605***
Liquidity
0.617
0.652
0.504
0.544
5.501***
5.067***
Tobin’s q1
1.424
1.133
1.578
1.138
0.437
0.000
1
mean difference tested on the natural logarithm of these variables.
Panel D: Comparison firms subject to non-partial takeovers and firms subject to control block transfers (Binary
variables)
Non-partial Tender
Firms Subject to Control
Difference
Offer Targets, N=
Block Transfers, N=
Proportion
Proportion
Proportion test
Dual Class Shares
0.879
0.808
1.917*
Controlling owner
0.417
0.210
4.463***
holds all A-shares
Pyramid
0.522
0.200
6.682***
Outside Block
0.456
0.495
0.780
Note: In this table, we provide summary statistics for the 195 firms and 1461 firm years in our sample. In panels
A and B, the sample is split by whether the firm was subject to a successful non-partial tender offer or a control
block transfer 1985-2005. All ownership spell years (N=396) prior to the successful non-partial tender offer or
control block transfer are classified as change of controlling owner. In Panels C and D, the sample of firms
experiencing changes in controlling ownership is split by whether the firm was subject to a non-partial tender
offer or a control block transfer. All ownership spell years prior to the event are classified as non-partial tender
offer targets or firms subject to control block transfers, respectively. Unadj. Equity is defined as the controlling
shareholder’s (largest voteholder) fraction of cash flow rights in the firm, unadjusted for pyramid structures.
Equity is defined as the controlling shareholder’s (largest voteholder) fraction of cash flow rights in the firm,
adjusted for pyramid structures. Votes are defined as the controlling shareholder’s fraction of voting rights in the
firm. Tenure is defined as the number of years the controlling shareholder has been the largest voteholder in the
firm. Firm Size is defined as the book value of total assets in Million SEK. Firm Age is defined as the number of
years since the firm was founded. Profitability is equal to Earnings Before Interest, Taxes, and Depreciation
(EBITD) divided by the book value of total assets. Leverage is equal to the value of long-term debt divided by
the book value of total assets. Liquidity is equal to the value of short-term assets divided by the book value of
total assets. Tobin’s q is defined as the sum of market value of equity and book value of debt divided by the book
value of total assets. Dual Class Shares are equal to one if the firm has issued shares with differential voting
rights, and zero otherwise. Controlling owner holds all A-Shares is equal to one if the controlling owner holds all
A-shares (high voting shares) and zero otherwise. Pyramid is equal to one if the firm is controlled by a pyramid
structure (i.e. the largest voteholder is another listed firm), and zero otherwise. Outside Block is equal to one if
the second largest shareholder holds at least 10 percent of the voting rights, and zero otherwise. Median
Difference tested by means of Wilcoxon- Ranksum test. *** Significant at the 1% level; ** Significant at the 5%
level; * Significant at the 10% level.
36
Table 3. Statistics on the bidders in non-partial tender offers and block trades, respectively
Panel A: Comparison of bidders in non-partial tender offers and control block transfers (Binary variables)
Bidders in Non-partial
Bidders in Control
Difference
Tender Offers, N=28
Block Transfers, N=62
N, (Proportion)
N, (Proportion)
Proportion test
Swedish
14 (0.500)
47 (0.758)
2.425**
Of which
Listed
10 (0.714)
22 (0.468)
1.619
Of which
Pyramid Firm
4 (0.400)
16 (0.727)
1.772*
Panel B: Comparison of bidders’ size in non-partial tender offers and control block transfers if the bidding firm
is listed
Listed Bidders in NonListed Bidders in Control
Difference
partial Tender Offers, N=10
Block Transfers, N=22
Mean
Median
Mean
Median
t-test
Ranksum
test
Market Value
8042
4824
6000
3396
0.656
0.566
Equity
Note: In this table, we provide summary statistics for the bidders in 28 non-partial tender offers and 62 control
block transfers, respectively. In panel A, we test whether bidders are more likely to be i) Swedish, ii) listed on
the stock market, and iii) pyramidal firms in non-partial tender offers compared to control block transfers. The
bidder is defined as being a pyramidal firm if it is controlled by another firm listed on the Swedish stock market.
In panel B we present the market value of equity for bidders being firms listed on the Swedish stock market. The
market value of equity is from January in the year of the control transfer and is adjusted for inflation with
Swedish CPI. Median Difference tested by means of Wilcoxon-Ranksum test. *** Significant at the 1% level; **
Significant at the 5% level; * Significant at the 10% level.
37
Table 4. Announcement returns at tender offers and block trades, respectively
Non-partial Tender Offer,
N=25
Mean
Median
Announcement
Return
0.272
0.285
Control Block Transfers, N=56
Difference
Mean
Median
t-test
0.054
0.016
5.613***
Ranksum
test
5.061***
Note: In this table, we present the stock market returns around the announcement of non-partial tender offers and
block transfers, respectively. The returns are estimated from 5 days before to 5 days after the first news about the
tender offer and block transfer, respectively. The announcement dates are collected from the Affärsdata database
and Thomson One Banker. Stock prices are collected from Datastream. Median Difference tested by means of
Wilcoxon- Ranksum test. *** Significant at the 1% level; ** Significant at the 5% level; * Significant at the
10% level.
38
Table 5. Estimated models of the hazard rate of a successful non-partial tender offer 19851998
M1
Without unobserved heterogeneity
Ln(Votes)
Ln(Votes/ Unadj Equity)
Ln(Unadj Equity/ Equity)
Leverage
Ln(Firm size)
Profitability
Liquidity
Ln(Tobin’s q)
Ln(Tenure)
Outside Block
LR test for frailty
Non-parametric baseline hazard
Log-likelihood value
AIC
1.027
(0.49)**
-1.135
(0.53)**
0.528
(0.23)**
-2.717
(1.42)*
0.160
(0.12)
-1.119
(3.55)
0.687
(1.02)
-0.281
(0.55)
-0.018
(0.01)**
0.580
(0.44)
χ2(3)=19.21[0.00]
-117.92
M2
Gamma Dist. Unobserved
heterogeneity
1.545
(0.64)**
-1.256
(0.69)*
0.476
(0.32)
-3.807
(2.00)*
0.348
(0.19)*
-1.011
(3.73)
1.023
(1.34)
-0.604
(0.77)
-0.033
(0.01)**
0.749
(0.52)
χ2(1)=2.56[0.055]
χ2(3)=13.07[0.04]
-116.64
0.18
Note: In this table, we report models estimating the hazard rate of the firm being subject to a successful nonpartial tender offer 1985-1998. The sample consists of 195 firms and 1461 firm years. 28 firms were subject to
successful non-partial tender offers. We report a model without unobserved heterogeneity (M1) and a model
with Gamma distributed unobserved heterogeneity (M2), respectively. Coefficients are reported with standard
errors in parenthesis. ***, **, and * denote significance at the 1%, 5%, and 10% level, respectively. Votes are
defined as the controlling shareholder’s fraction of voting rights in the firm. Unadj. Equity is defined as the
controlling shareholder’s (largest voteholder) fraction of cash flow rights in the firm. Equity is defined as the
controlling shareholder’s (largest voteholder) fraction of cash flow rights in the firm, adjusted for pyramid
structures. Leverage is equal to the value of long-term debt divided by the book value of total assets. Firm Size is
defined as the book value of total assets in Million SEK. Profitability is equal to Earnings Before Interest, Taxes,
and Depreciation (EBITD) divided by the book value of total assets. Liquidity is equal to the value of short-term
assets divided by the book value of total assets. Tobin’s q is defined as the sum of market value of equity and
book value of debt divided by the book value of total assets. Tenure is defined as the number of years the
controlling shareholder has been the largest voteholder in the firm. Outside Block is equal to one if the second
largest shareholder holds at least 10 percent of the voting rights, and zero otherwise. The duration dependency of
hazard rate is captured by four dummy variables corresponding to duration intervals. Ln denotes the natural
logarithm.
39
Table 6. Estimated models of the hazard rate of a negotiated control block transfer1985-1998
M1
Without unobserved heterogeneity
Ln(Votes)
Ln(Votes/ Unadj Equity)
Ln(Unadj Equity/ Equity)
Leverage
Ln(Firm size)
Profitability
Liquidity
Ln(Tobin’s q)
Ln(Tenure)
Outside Block
LR test for frailty
Non-parametric baseline hazard
Log-likelihood value
AIC
-0.734
(0.23)***
0.513
(0.25)**
-0.130
(0.21)
0.789
(0.83)
-0.159
(0.09)*
-2.353
(1.49)
-0.963
(0.68)
-0.015
(0.30)
-0.003
(0.01)
0.174
(0.26)
χ2(3)=4.36[0.11]
-237.32
M2
Gamma Dist. Unobserved
heterogeneity
-0.772
(0.25)***
0.583
(0.31)*
-0.118
(0.24)
1.110
(1.04)
-0.181
(0.10)*
-2.572
(1.78)
-0.893
(0.74)
-0.052
(0.33)
-0.004
(0.01)
0.263
(0.31)
χ2(1)=0.40[0.26]
χ2(3)=4.17[0.12]
-237.12
0.34
Note: In this table, we report models estimating the hazard rate of the firm being subject to a negotiated control
block transfer 1985-1998. The sample consists of 195 firms and 1461 firm years. 62 firms were subject to
negotiated control block transfers. We report a model without unobserved heterogeneity (M1) and a model with
Gamma distributed unobserved heterogeneity (M2), respectively. Coefficients are reported with standard errors
in parenthesis. ***, **, and * denote significance at the 1%, 5%, and 10% level, respectively. Votes are defined
as the controlling shareholder’s fraction of voting rights in the firm. Unadj. Equity is defined as the controlling
shareholder’s (largest voteholder) fraction of cash flow rights in the firm. Equity is defined as the controlling
shareholder’s (largest voteholder) fraction of cash flow rights in the firm, adjusted for pyramid structures.
Leverage is equal to the value of long-term debt divided by the book value of total assets. Firm Size is defined as
the book value of total assets in Million SEK. Profitability is equal to Earnings Before Interest, Taxes, and
Depreciation (EBITD) divided by the book value of total assets. Liquidity is equal to the value of short-term
assets divided by the book value of total assets. Tobin’s q is defined as the sum of market value of equity and
book value of debt divided by the book value of total assets. Tenure is defined as the number of years the
controlling shareholder has been the largest voteholder in the firm. Outside Block is equal to one if the second
largest shareholder holds at least 10 percent of the voting rights, and zero otherwise. The duration dependency of
hazard rate is captured by four dummy variables corresponding to duration intervals. Ln denotes the natural
logarithm.
40
Table 7. Statistics on the bidders’ and incumbents’ position before and after the control
changes, respectively
Panel A: The bidders’ position in the target before and after the control transfer
Bidders in Non-partial
Bidders in Control Block
Tender Offer, N=28
Transfers, N=62
Mean
Median
Mean
Median
Before
Equity
Votes
After
Equity
Votes
Difference
t-test
Ranksum
test
0.026
0.020
0.000
0.000
0.038
0.047
0.000
0.000
0.617
1.510
2.010**
2.100**
1.000
1.000
1.000
1.000
0.181
0.408
0.134
0.385
n.a.
n.a.
n.a.
n.a.
Panel B: The incumbent’ position in the target before and after the control transfer
Incumbents in Non-partial
Incumbents in Control
Takeover, N=28
Block Transfers, N=62
Mean
Median
Mean
Median
Difference
t-test
Ranksum
test
Before
Equity
0.243
0.135
0.220
0.170
0.514
0.161
Votes
0.518
0.485
0.417
0.355
2.230**
0.286
After
Equity
0.000
0.000
0.042
0.000
n.a.
n.a.
Votes
0.000
0.000
0.063
0.000
n.a.
n.a.
Note: In this table, we provide summary statistics for the bidders and incumbents in the 28 non-partial tender
offers and 62 control block transfers, respectively. In panel A, we present statistics on the bidders’ holdings in
the target firms before and after the control transfer. Equity is defined as the controlling shareholder’s (largest
voteholder) fraction of cash flow rights in the firm, adjusted for pyramid structures. Votes are defined as the
controlling shareholder’s fraction of voting rights in the firm. In panel B we present statistics on the incumbents’
holdings in the target firms before and after the control transfer. Median Difference tested by means of
Wilcoxon- Ranksum test. *** Significant at the 1% level; ** Significant at the 5% level; * Significant at the
10% level.
41
Table 8. Estimated models of the hazard rate of a negotiated control block transfer, 19992005
M1
Without unobserved heterogeneity
Ln(Votes)
Ln(Votes/ Unadj Equity)
Ln(Unadj Equity/ Equity)
Leverage
Ln(Firm size)
Profitability
Liquidity
Ln(Tobin’s q)
Ln(Tenure)
Outside Block
LR test for frailty
Non-parametric baseline
hazard
Log-likelihood value
AIC
M2
Gamma Dist. Unobserved
heterogeneity
-0.259
(1.11)
0.636
(1.30)
0.274
(0.69)
-1.235
(4.73)
-0.054
(0.39)
-5.657
(5.52)
-1.612
(2.60)
-0.341
(0.61)
-0.002
(0.02)
0.826
(1.00)
χ2(1)=1.79[0.09]
χ2(2)=0.08[0.96]
0.113
(0.40)
0.170
(0.48)
0.232
(0.42)
0.288
(1.23)
-0.186
(0.16)
-2.414
(1.06)**
-0.862
(0.97)
-0.543
(0.34)
0.003
(0.01)
0.428
(0.47)
χ2(2)=0.07[0.96]
-82.93
-82.03
0.27
Note: In this table, we report models estimating the hazard rate of the firm being subject to a negotiated control
block transfer 1999-2005. The sample consists of 140 firms and 713 firm years. 20 firms were subject to
negotiated control block transfers. We report models without unobserved heterogeneity (M1) and with Gamma
distributed unobserved heterogeneity (M2), respectively. Coefficients are reported with standard errors in
parenthesis. ***, **, and * denote significance at the 1%, 5%, and 10% level, respectively. Votes are defined as
the controlling shareholder’s fraction of voting rights in the firm. Unadj. Equity is defined as the controlling
shareholder’s (largest voteholder) fraction of cash flow rights in the firm. Equity is defined as the controlling
shareholder’s (largest voteholder) fraction of cash flow rights in the firm, adjusted for pyramid structures.
Leverage is equal to the value of long-term debt divided by the book value of total assets. Firm Size is defined
as the book value of total assets in Million SEK. Profitability is equal to Earnings Before Interest, Taxes, and
Depreciation (EBITD) divided by the book value of total assets. Liquidity is equal to the value of short-term
assets divided by the book value of total assets. Tobin’s q is defined as the sum of market value of equity and
book value of debt divided by the book value of total assets. Tenure is defined as the number of years the
controlling shareholder has been the largest voteholder in the firm. Outside Block is equal to one if the second
largest shareholder holds at least 10 percent of the voting rights, and zero otherwise. The duration dependency of
hazard rate is captured by four dummy variables corresponding to duration intervals. Ln denotes the natural
logarithm.
42