4 ms·
Wrt 2: It's a bit complicated. The "market price" isn't really the target here, if you are talking about the price of the stock on stock exchanges. It's accept
by friesfreeze 4y ago
Wrt 2:
It's a bit complicated. The "market price" isn't really the target here, if you are talking about the price of the stock on stock exchanges. It's accepted that there is a thing called a "control premium" - basically it is more valuable to own >50% of a company because in addition to having an economic stake, you can now control the company. So when you are buying a company, you generally have to pay more (20%+) than the "market price" because you are also purchasing the "control premium".
So, there is a zero sum game going on here. That control premium is going to be divided up between the buyer and the seller based on the strength of their bargaining positions. For various reasons (poison pill included) board has a stronger negotiating position in extracting the "control premium" than do individual investors. If you weaken the current shareholder's bargaining position (by for example not allowing the board to negotiate price) you increase the share of the control premium going to the purchaser and decrease the share going to the current shareholders.
FWIW the poison pill is controversial. But from a "Law and Econ" perspective - this is the main justification.
- friesfreeze 4y agoAlso - since I'm on a bit of a roll - there are definitely other stories for what is going on here. One is that poison pills kind of soften the edges of capitalism a bit by allowing directors to decide if they want to the company to be sold or not. Call it crocodile tears by entrenched management, but there is something to be said for keeping a company off the market if the hostile bidder is going to just fire workers and scrap the company for parts. Fairly, this view is not consistent with "shareholder primacy" but it has to be said that not everyone sees the world that way.
- krick 4y agoThanks, that's a bit more of an explanation to what I was wondering about than most of the other answers.
- friesfreeze 4y agoYou're welcome. Corporate governance is a surprisingly controversial area for how boring it seems at first glance. Here's a more in depth apologetic for the interested: https://theliptonarchive.org/1980s/ https://theliptonarchive.org/1980s/
- whatshisface 4y agoCorporate governance looks absolutely exciting at first glance, because so much of our lives are determined by it. (We spend a lot more time buying products than we do voting for politicians or filing taxes, same with spending money.)