The Transfer Of Corporate Control, The Change Of Corporate Value And The Role Of Blockholder

In both classical and modern business enterprises, large shareholders always play important roles that are the bases on which people analyze blockholders'special function in business enterprises in theory, the roles include the blockholder's supervision of the operator, the importance in corporate finance, the credit enhancement in corporate transactions and so on. However the empirical studies by Fama and Jensen (1983) and DeAngelo (1985) indicated that in the modern enterprise, the large shareholder could always get more than the average shareholders, Grossman and Hart(1988) formally called it large shareholder private benefits of control of corporation. From then, people have new views on the the presence and the role of large shareholders in enterprise, that is, one of the important reasons why some investors would like to become the major shareholders is that they want to get control of the corporation and get private benefits of control, and this behavior also lead to changes of business content and the difference between the major shareholder and the average shareholders in the distribution of interests. Just for the special role and interests, investors often fight for the major shareholders'control of the corporation so that the trading market of large shareholder control of corporation appears. In reality, the essence of many M&A is competition for large shareholder control right of corporation. The artical analyzes just the effect of the large shareholders and the private benefits of control on the market of large shareholder control of corporation and the change of corporate value from the transfer of control.Blockholders include controlling and non-controlling blockholders. In the market of large shareholder control of corporation. these two types of blockholders have different responses to the purchaser who wants to buy large shareholder control right of corporation, and they have different games with average shareholders too. The article finds that, for the target company with controlling blockholder, since any purchaser who wants to buy the large shareholder control right has to transact with controlling blockholder, the controlling blockholder of target company has the absolute right to speak and can ignore the behaviors of average shareholders so that the number of shares owned by the controlling blockholder and the number of large shareholder's private benefits from every share will determine directly the sale price of large shareholder control right, this leads to only those purchasers who meet the controlling blockholder's private benefits of control to be able to gain the large shareholder control right. For the target company with non-controlling blockholder, while the purchaser can get the large shareholder control right by gaining controlling shares from those scattered average shareholders of target company, this poses a threat to the non-controlling blockholder, as a result, the non-controlling blockholder has to always take into account the behaviors of average shareholders and take appropriate strategies in the sale of large shareholder control right. The artical finds that, in this case, when the average shareholders sell their shares, the non-controlling blockholder sells all his shares too, and when the average shareholders do not sell their shares, the non-controlling blockholder sells his shares only if sale price is above the price which meets his private benefits of control. this game makes any purchasers who increase average shareholders' equity return can succeed in tender offer. However, the existence of non-controlling shareholder also increases purchaser's acquisition cost through forcing purchaser to buy more shares or raising the price when the purchasers can bring about more return on equity to average shareholders.As a comparison, The artical also analyzes the pricing of large shareholder control right of the corporation without blackholder and find that the presence of both large shareholders raises the sale price of shares. However, the presence of non-controlling blockholder does not reduce the trading possibility of corporate control while it raises the sale price of shares, and the presence of controlling blockholder reduces the trading possibility of corporate control while it raises the sale price of shares. In addition, the presence of non-controlling blockholder also reduces perchaser's large shareholder private benefits and raises average shareholders'equity value after transfer of corporate control. Therefore, the presence of non-controlling blockholder is relatively more benificial to target corporation.The pricing of large shareholder control rihgt means meantime that only those purchasers who meet the trading price can gain the large shareholder control of corporation, this sets the bottom line of which any buyer must bring change of equity value to target corporation. For a tender offer, first, any successful transfer of control of corporation will not reduce the target corporation's return on equity; Second, the presence of controlling blockholder certainly bring equity earnings to the target corporation after the transfer of control; Third, if the buyer is an average shareholder of target corporation. he will bring more equity earnings to the target corporation than an outside buyer with the average shareholder's equity premium promoting him to more actively research technology to improve the efficiency of target corporation.Finally, The artical analyzes the the meanings of ownership structure for the building an effective trading market of large shareholder control of corporation. Because the presence of controlling blockolder reduces the trading possibility of corporate control while the presence of non-controlling blockholder does not reduce the possibility with reducing the large shareholder's private benefits of control in the economy, the presence of non-controlling blockholder is more favorable to trading market of large shareholder control right of corporation. Generally, the more shares non-controlling and the less private benefit of control per share blockholder holds, the better effect the presence of non-controlling large shareholder has on the traing market of large shareholder control.