Bidder excess control, target overpayment and control contestability: Evidence from France

This article investigates the effect of acquirers’ excess control rights on the acquisition premium in a context of control contestability. Using a sample of 169 transactions initiated by French listed firms over the period of 2000–2015, our findings provide evidence of i) a positive relationship between the control-ownership wedge of the ultimate controlling shareholder and target overpayment for non-family bidder firms, and ii) a negative impact of the presence of multiple large shareholders (MLS) on target overpayment. The bidding behavior is less pronounced in family-controlled firms. We show that the ultimate shareholders with excess control overpay for public targets when they hold more than 20% of the voting rights. The presence of MLS plays a crucial monitoring governance role by discouraging the ultimate owner from overpaying for targets. Overall, our findings contribute to the literature by examining the effect of controlling shareholder entrenchment on the acquisition premium in the presence of MLS. These findings are robust to a number of checks and have several policy implications.