Ifthevalueofcontrolisthedifferencebetweenthestatusquo
valueofafirmandthevalueofthefirmoptimallyrun,we
can derive the following implications about it:
- Thevalueofcontrolwillvaryacrossfirms.Sincethe
controlpremiumisthedifferencebetweenthestatus
quovalueofafirmanditsoptimalvalue,itfollows
that the premium should be larger for poorly
managedfirmsandsmallerforwell-managedfirms.
Infact,thecontrolpremiumshouldbezeroforfirms
where management is already making the right
decisions. - Therecanbenoruleofthumboncontrolpremium.
Sincecontrolpremiumwillvaryacrossfirms, there
canbenosimpleruleofthumbthatappliesacrossall
firms.Thus,thenotionthatcontrolisalways 20 to 30
percent of value cannot be right.
37 - Thecontrolpremiumshouldvarydependingonwhy
a firm is performing badly. The control premium
should be higherwhena firm isperforming badly
becauseofpoormanagementdecisionsthanwhena
firm’sproblemsarecausedbyexternalfactorsover
whichmanagementhaslimitedornocontrol.Thus,
thevalue of controlwill not be ashigh in a gold
mining company whose earnings are depressed
becausegoldpriceshavedroppedasitwouldbeata
manufacturing company where earnings are low
because of management misjudgments about what
customers want. - Thecontrolpremiumshouldbeafunctionoftheease
ofmakingmanagementchanges.Notallchangesare
easytomakeorquicktoimplement.Itisfareasierto