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Guideline Public Company Valuation and Control Premiums: An Economic Analysis

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  • Cornell Bradford

    (California Institute of Technology, Pasadena, CA 91125, USA)

Abstract

There is a long running valuation debate regarding whether a control premium should be added to valuation based on guideline public companies because the share prices of the guideline companies represent marketable minority positions. This paper attempts to resolve that debate by developing a more complete economic model to analyze the issue. Based on the economic model, which highlights the potential motives for acquisitions, I conclude that no adjustment for a control premium is required to appraise a company on a current going concern basis. If the goal is to value a company at its highest value use, including as part of another company, then an adjustment to take account of the benefits of synergies, if there are any, is required. However, historical averages of acquisition premiums will overstate the proper adjustment.

Suggested Citation

  • Cornell Bradford, 2013. "Guideline Public Company Valuation and Control Premiums: An Economic Analysis," Journal of Business Valuation and Economic Loss Analysis, De Gruyter, vol. 8(1), pages 53-69, January.
    • Handle: RePEc:bpj:jbvela:v:8:y:2013:i:1:p:1-17:n:1
    DOI: 10.1515/jbvela-2013-0005
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    References listed on IDEAS

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    Keywords

    corporate valuation; control premiums;

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