3 ms·

I think you're stating their point accurately. But what I mean is that in the usual case, the value of 1,000,000 shares is actually greater than 1,000,000 x (pr

by isamuel 12y ago

I think you're stating their point accurately. But what I mean is that in the usual case, the value of 1,000,000 shares is actually greater than 1,000,000 x (price of one share), because you're getting something more with those million shares: control. That said, there may be countervailing forces at work in tightly-held startups that don't apply to liquid capital markets.

twoodfin 12y ago
Let me try to spell this out in a bit more detail. I think you know everything I'm about to say, but I want to make sure I understand it: You'd be crazy to pay more than a few cents more than the market price for 1 share of AAPL, because that price represents the value the most marginal AAPL investor places on the stock: Offer him a penny more and he'll sell it to you. But there are investors standing behind him who think AAPL is worth more than the current price. As you need to buy out less marginal investors, the price to get them to hand over their AAPL shares will rise. Thus 1,000,000 shares will cost you more on average than one regardless of the value of control. The same works in reverse with AirBNB: If they sell one share, it will go to the most enthusiastic investor who thinks they're a future $1T company. If they try to sell 1,000,000, they have to work their way down into those investors who believe AirBNB is a more marginal opportunity, and the average price will decline.
- voronoff 12y ago
  This is right, but isamuel is also right in that there is the separate effect of the price of control, such that in reality it's harder to say what would happen in the AirBnB case because of the interaction effects. It would be interesting to probe into further, but the most directly applicable data is probably fairly hard to get ahold of, given that it's investment/acquisition offers not taken in lieu of the other.

by isamuel 12y ago

twoodfin 12y ago

Let me try to spell this out in a bit more detail. I think you know everything I'm about to say, but I want to make sure I understand it: You'd be crazy to pay more than a few cents more than the market price for 1 share of AAPL, because that price represents the value the most marginal AAPL investor places on the stock: Offer him a penny more and he'll sell it to you. But there are investors standing behind him who think AAPL is worth more than the current price. As you need to buy out less marginal investors, the price to get them to hand over their AAPL shares will rise. Thus 1,000,000 shares will cost you more on average than one regardless of the value of control. The same works in reverse with AirBNB: If they sell one share, it will go to the most enthusiastic investor who thinks they're a future $1T company. If they try to sell 1,000,000, they have to work their way down into those investors who believe AirBNB is a more marginal opportunity, and the average price will decline.

voronoff 12y ago
This is right, but isamuel is also right in that there is the separate effect of the price of control, such that in reality it's harder to say what would happen in the AirBnB case because of the interaction effects. It would be interesting to probe into further, but the most directly applicable data is probably fairly hard to get ahold of, given that it's investment/acquisition offers not taken in lieu of the other.