Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )

(Hop HipldF0AV) #1

managementchanginginthisfirmisπ.Sincethenonvoting
shareshaveabsolutelynosayinwhetherthemanagementcan
be changed, the value per nonvoting share will be based
purely upon the status quo value:


Thevotingshareswilltradeata premiumthatreflects the
expected value of control:


Thepremiumonvotingsharesshouldthereforebeafunction
oftheprobabilitythattherewillbeachangeinmanagement
atthatfirm(π)andthevalueofchangingmanagement(Va−
Vb).


Totheextentthatnonvotingshareholdersareprotectedorcan
extractsomeoftheexpectedvalueofcontrol,thedifference
between voting and nonvoting shares will be lower. It is
possible,forinstance,fornonvotingsharestogainsome of
the value of control if it is accomplished by changing
managers,ratherthanbyahostiletakeover.Inthatcase,the
value of the firm will increase and all shareholders will
benefit.


Thereisonespecialcategoryofvotingsharescalledgolden
sharesthatwesometimesseeingovernment-ownedfirmsthat
have been privatized. These shares are retained by the
government after the privatizationand essentiallygive the
government vetopower over majordecisions madeby the
firm.Ineffect,theyallowthegovernmenttoretainsomeora

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