197 research outputs found
Agency conflicts in public and negotiated transfers of corporate control
No full textWe analyze control transfers in firms with a dominant minority blockholder and
otherwise dispersed owners, and show that the transaction mode is important.
Negotiated block trades preserve a low level of ownership concentration, inducing
more inefficient extraction of private benefits. In contrast, public acquisitions increase
ownership concentration, resulting in fewer private benefits and higher firm
value. Within our model, the incumbent and new controlling party prefer to trade
the block because of the dispersed shareholders’ free-riding behavior. We also explore
the regulatory implications of this agency problem and its impact on the terms of block trade
Large Shareholders, Monitoring, and the Value of the Firm
No full textWe propose that dispersed outside ownership and the resulting managerial discretion come with costs but also with benefits. Even when tight control by shareholders is ex post efficient, it constitutes ex ante an expropriation threat that reduces managerial initiative and noncontractible investments. In addition, we show that equity implements state contingent control, a feature usually associated with debt. Finally, we demonstrate that monitoring, and hence ownership concentration, may conflict with performance-based incentive schemes
Minority Blocks and Takeover Premia
No full textThis paper analyses takeovers of companies owned by atomistic shareholders and by one minority blockholder, all of whom can only decide to tender or retain their shares. As private benefit extraction is inefficient, the posttakeover share value increases with the bidder's shareholdings. In a successful takeover, the blockholder tenders all his shares and the small shareholders tender the amount needed so that the posttakeover share value matches the bid price. Compared to a fully dispersed target company, the bidder may have to offer a higher price either to win the blockholder's support or to attract enough shares from small shareholders
Why Higher Takeover Premia Protect Minority Shareholders
No full textPosttakeover moral hazard by the acquirer and free-riding by the target shareholders lead the former to buy as few shares as necessary to gain control. As moral hazard is most severe under low ownership concentration, inefficiencies arise in successful takeovers. Moreover, share supply is shown to be upward-sloping. Rules promoting ownership concentration limit both agency costs and the occurrence of takeovers. One share-one vote and simple majority are generally not optimal, and socially optimal rules need not emerge through private contracting
Legal Investment Protection and Takeovers
No full textWe study the role of legal investor protection for the efficiency of the market for corporate control. Stronger legal investor protection limits the ease with which an acquirer, once in control, can extract private benefits at the expense of non-controlling investors. This, in turn, increases the acquirer’s capacity to raise outside funds to finance the takeover. Absent effective competition for the target, the increased outside funding capacity does not make efficient takeovers more likely, however, because the bid price, and thus the acquirer’s need for funds, increase in lockstep with his pledgeable income. In contrast, under effective competition, the increased outside funding capacity makes it less likely that the takeover outcome is determined by the bidders’ financing constraints–and thus by their internal funds–and more likely that it is determined by their ability to create value. Accordingly, stronger legal investor protection can improve the efficiency of the takeover outcome. Taking into account the interaction between legal investor protection and financing constraints also provides new insights into the optimal allocation of voting rights, sales of controlling blocks, and the role of legal investor protection in cross-border M&A
Understanding Growth Pharma: a deep dive into the Actavis-Allergan merger
No full textSince the 2000s, the Pharmaceutical industry has been facing strong challenges: a constantly changing
and increasingly complex regulatory environment, an erosion of margins caused by governmental
pricing pressures and a decrease in Research & Development (R&D) productivity. This complex
environment has hurt the industry’s bottom line, forcing incumbents and new players to reconsider
their approach to the industry’s propelling engine: R&D.
Traditionally, innovation was driven by big pharmaceutical companies allocating an important
amount of their sales on R&D spending. By developing new drugs in-house, these companies were
managing to keep the control over these new drugs and treatments. These innovations were then
protected by patents lasting for a few decades. Once the protection had expired, other players could
enter the market by replicating the drug, driving its prices and hence, its profitability down by as
much as 80%.
In the last decades, the way innovation is being delivered has changed. Rather than big pharmaceutical
firms developing new products, small biotechnological start-ups are responsible for most of the new
discoveries. Their small size forces these players to specialize and focus all their R&D efforts on
specific therapeutic areas. Additionally, these start-ups can attract human capital and talent, but lack
financial muscle to exploit their findings. These conditions set the perfect framework for the increase
of M&A activity with far more potential targets to buy.
Building on this, a new business model has arisen in the industry: Growth Pharma. Among others, its
most important characteristic is the way R&D is conducted. Instead of vast investments to develop
drugs in-house, Growth Pharma companies tend to buy other biotech & pharma companies to acquire
their drug development pipeline. In this way, rather than dealing with the uncertainty of developing
new drugs and facing regulatory risks, these companies acquire other players with drugs in late-stage
of development.
The merger of Actavis and Allergan is considered as of 2015 the foremost example of Growth Pharma.
In addition to being the fourth largest deal of all times in the Pharmaceutical industry, its
characteristics make it a unique deal. The story started with an unsuccessful hostile takeover by
Valeant Pharmaceuticals, a company which embraced Growth Pharma under the leadership of Michael
Pearson. Some investors considered Valeant the new Berkshire Hathaway after it partnered in 2014
with Pershing Square, a New York based hedge fund, to do a hostile takeover over Allergan.
Actavis’ friendly takeover of Allergan granted the merged company access to the Top 10 companies
by Enterprise Value within the pharmaceutical industry. Both companies followed different R&D
models: Allergan’s closer to the traditional approach and Actavis opting for the Growth Pharma model.
However, a combination of both companies seemed to bring the best of these two worlds. On one
side, Allergan’s expertise in developing new drugs and block-buster patents such as BOTOX®. On
the other side, Actavis’ best-in-class in pipeline success rate through a spotless record of effectively
integrated acquisitions
Understanding Growth Pharma: a deep dive into the Actavis-Allergan merger
No full textSince the 2000s, the Pharmaceutical industry has been facing strong challenges: a constantly changing
and increasingly complex regulatory environment, an erosion of margins caused by governmental
pricing pressures and a decrease in Research & Development (R&D) productivity. This complex
environment has hurt the industry’s bottom line, forcing incumbents and new players to reconsider
their approach to the industry’s propelling engine: R&D.
Traditionally, innovation was driven by big pharmaceutical companies allocating an important
amount of their sales on R&D spending. By developing new drugs in-house, these companies were
managing to keep the control over these new drugs and treatments. These innovations were then
protected by patents lasting for a few decades. Once the protection had expired, other players could
enter the market by replicating the drug, driving its prices and hence, its profitability down by as
much as 80%.
In the last decades, the way innovation is being delivered has changed. Rather than big pharmaceutical
firms developing new products, small biotechnological start-ups are responsible for most of the new
discoveries. Their small size forces these players to specialize and focus all their R&D efforts on
specific therapeutic areas. Additionally, these start-ups can attract human capital and talent, but lack
financial muscle to exploit their findings. These conditions set the perfect framework for the increase
of M&A activity with far more potential targets to buy.
Building on this, a new business model has arisen in the industry: Growth Pharma. Among others, its
most important characteristic is the way R&D is conducted. Instead of vast investments to develop
drugs in-house, Growth Pharma companies tend to buy other biotech & pharma companies to acquire
their drug development pipeline. In this way, rather than dealing with the uncertainty of developing
new drugs and facing regulatory risks, these companies acquire other players with drugs in late-stage
of development.
The merger of Actavis and Allergan is considered as of 2015 the foremost example of Growth Pharma.
In addition to being the fourth largest deal of all times in the Pharmaceutical industry, its
characteristics make it a unique deal. The story started with an unsuccessful hostile takeover by
Valeant Pharmaceuticals, a company which embraced Growth Pharma under the leadership of Michael
Pearson. Some investors considered Valeant the new Berkshire Hathaway after it partnered in 2014
with Pershing Square, a New York based hedge fund, to do a hostile takeover over Allergan.
Actavis’ friendly takeover of Allergan granted the merged company access to the Top 10 companies
by Enterprise Value within the pharmaceutical industry. Both companies followed different R&D
models: Allergan’s closer to the traditional approach and Actavis opting for the Growth Pharma model.
However, a combination of both companies seemed to bring the best of these two worlds. On one
side, Allergan’s expertise in developing new drugs and block-buster patents such as BOTOX®. On
the other side, Actavis’ best-in-class in pipeline success rate through a spotless record of effectively
integrated acquisitions
Understanding Growth Pharma: a deep dive into the Actavis-Allergan merger
No full textSince the 2000s, the Pharmaceutical industry has been facing strong challenges: a constantly changing
and increasingly complex regulatory environment, an erosion of margins caused by governmental
pricing pressures and a decrease in Research & Development (R&D) productivity. This complex
environment has hurt the industry’s bottom line, forcing incumbents and new players to reconsider
their approach to the industry’s propelling engine: R&D.
Traditionally, innovation was driven by big pharmaceutical companies allocating an important
amount of their sales on R&D spending. By developing new drugs in-house, these companies were
managing to keep the control over these new drugs and treatments. These innovations were then
protected by patents lasting for a few decades. Once the protection had expired, other players could
enter the market by replicating the drug, driving its prices and hence, its profitability down by as
much as 80%.
In the last decades, the way innovation is being delivered has changed. Rather than big pharmaceutical
firms developing new products, small biotechnological start-ups are responsible for most of the new
discoveries. Their small size forces these players to specialize and focus all their R&D efforts on
specific therapeutic areas. Additionally, these start-ups can attract human capital and talent, but lack
financial muscle to exploit their findings. These conditions set the perfect framework for the increase
of M&A activity with far more potential targets to buy.
Building on this, a new business model has arisen in the industry: Growth Pharma. Among others, its
most important characteristic is the way R&D is conducted. Instead of vast investments to develop
drugs in-house, Growth Pharma companies tend to buy other biotech & pharma companies to acquire
their drug development pipeline. In this way, rather than dealing with the uncertainty of developing
new drugs and facing regulatory risks, these companies acquire other players with drugs in late-stage
of development.
The merger of Actavis and Allergan is considered as of 2015 the foremost example of Growth Pharma.
In addition to being the fourth largest deal of all times in the Pharmaceutical industry, its
characteristics make it a unique deal. The story started with an unsuccessful hostile takeover by
Valeant Pharmaceuticals, a company which embraced Growth Pharma under the leadership of Michael
Pearson. Some investors considered Valeant the new Berkshire Hathaway after it partnered in 2014
with Pershing Square, a New York based hedge fund, to do a hostile takeover over Allergan.
Actavis’ friendly takeover of Allergan granted the merged company access to the Top 10 companies
by Enterprise Value within the pharmaceutical industry. Both companies followed different R&D
models: Allergan’s closer to the traditional approach and Actavis opting for the Growth Pharma model.
However, a combination of both companies seemed to bring the best of these two worlds. On one
side, Allergan’s expertise in developing new drugs and block-buster patents such as BOTOX®. On
the other side, Actavis’ best-in-class in pipeline success rate through a spotless record of effectively
integrated acquisitions
R&D Outsourcing Contract with Information Leakage
No full textThis paper studies an R&D outsourcing contract between a firm and a contractor, considereing the possibility that in the interim stage, the contractor might sell the innovation to the rival firm. Our result points out that due to the competition in the interim stage, the reward needed to prevent leakage will be pushed up to the extent that a profitable leakage free contract does not exist. This result will also apply to cases considering revenue-sharing schemes and a disclosure punishment for commercial theft. Then, we demonstrate that in a competitive mechanism where the R&D firm hires two contractors together with a relative performance scheme, the disclosure punishment might help and there exists a perfect Bayesian Nash equilibrium where the probability of information leakage is lower and the equilibrium reward is also cheaper than hiring one contractor.R&D outsourcing, Contract, Information leakage, Collusion, Multiple agents
Entrepreneurship in equilibrium
No full textThis paper compares the ficing of new ventures in startups (entrepreneurship) and in established firms (intrapreneurship). Intrapreneurship allows established firms to use information on failed intrapreneurs to redeploy them into other jobs. Instead, failed entrepreneurs must seek other jobs in an imperfectly informed external labor market. While this is expost inefficient, it provides entrepreneurs with highpowered incentives ex ante. We show that two types of equilibria can arise (and sometime coexist). In a low (high) entrepreneurship equilibrium, the market for failed entrepreneurs is thin (deep). Internal (external)labor markets are thus particularly valuable, which favors intrapreneurship (entrepreneurship). We also show that there can be too little entrepreneurial activity since entrepreneurs don't take into account the positive effect of their choice of organizational form on the performance of the labor market
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