NBER Working Papers by Julian Franks

Family ownership was rapidly diluted in the twentieth century in Britain. The main cause was equity issued in the process of making acquisitions. In the first half of the century, it occurred in the absence of minority investor protection and relied on directors of target firms protecting the interests of shareholders. Families were able to retain control by occupying a disproportionate number of seats on the boards of firms. However, in the absence of large stakes, the rise of hostile takeovers and institutional shareholders made it increasingly difficult for families to maintain control without challenge. Potential targets attempted to protect themselves through dual class shares and strategic share blocks but these were dismantled in response to opposition by institutional shareholders ...

This paper examines means of payment in over 2,500 acquisitions in the UK and US over the period 1955 to 1985. Data on financing proportions, bid premia and postmerger performance are used to test the validity of tax and information hypotheses. It is difficult to explain many of the results in terms of tax effects. Capital gains tax does not appear to be a primary determinant of financing patterns in the UK in a period in which there were substantial variations in the tax rate. As well the tax motivated "trapped equity" model is inconsistent with several observations on financing patterns. In both countries much larger acquiree bid premia are associated with cash than equity bids, consistent with information models suggesting that high valuing bidders make cash offers and low valuing bidde...