themarket price and our valuesper share are correct, the
market price can be written in terms of a probability of
control changing and the expected value of control:
The market is attaching a probability of 59.5% that
managementpoliciescanbechanged.ThiswasafterIcahn’s
successfulchallengeofmanagement.Priortohisarrivingon
thescene,themarketpricepersharewas$8.20,yieldinga
probability of only 41.8% of management changing.
Voting and Nonvoting Shares
Inmanymarkets,itiscommonforthevotingrightstovary
acrossdifferentclassesofshares.Thesharesthatcarrynoor
fewervotingrightsshouldbeworthlessthansharesthatcarry
morevotingpower,andthedifferenceinpriceshouldbea
function of the expected value of control.
Premium for Voting Shares
Tolinkthepremiumonvotingsharestotheexpectedvalueof
control, let us beginwith an extreme and very simplistic
example.Assumethatyouhaveacompanywith nvvoting
and nnvnonvoting sharesand thatthe votingshareholders
havecompleteandtotalcontrolofthebusiness.Thustheyare
freetoignoretheviewsofnonvotingsharesintheeventofa
hostiletakeoverandnegotiatethebestdealthattheycanfor
themselves with the acquirer.
52 AssumefurtherthatthisfirmhasastatusquovalueofVb
and an optimal value of Va and that the likelihood of