370 10 Exit of Shareholders
Public offering. A public offering is legally more complicated and expensive
than a trade sale or a private placement. It requires the existence of relatively well-
developed and liquid capital markets and legal infrastructure. On the other hand, a
public offering can also foster the development of a capital market and equity cul-
ture. Stronger information asymmetries and the lack of private benefits of control
for the investors mean that there is a discount on price and that the seller tends to
take underpricing for granted.
Sale to employees. Sale to employees is probably the weakest alternative. On
one hand, it may be easier to gain employee support for a sale to employees them-
selves. It could also be argued that the alignment of employees’ interests with
those of the firm’s owners will give an incentive to improve efficiency. On the
other, selling the firm to its employees would result in a weak corporate govern-
ance structure. Employees are typically more concerned about terms of employ-
ment and wages than the profitability of the firm.
Mix. The owner can also use a mix of privatisation methods. For example, the
government of a Member State can prefer to make a public offering of shares to
retail investors and to institutional investors while retaining a controlling stake.
Alternatively, the government can combine a trade sale with a public offering.
Mixing a public offering with a trade sale or a sale to knowledgeable institu-
tional investors can reduce underpricing. Furthermore, the sale of shares to trade
buyers or institutional investors can contribute to better control and a better gov-
ernance structure.
10.4 Mergers and Divisions.........................................................................
10.4.1 General Remarks
A merger and a division can lead to a share exchange or a clean exit or a combina-
tion of cash payment and securities. Mergers and divisions differ from private
sales and takeover offers in that the shareholder may not choose whether to sell
shares or not. Shareholders vote on the merger or division. Upon the transaction
becoming effective, it will be binding on all shareholders, irrespective of whether
or not they attended or voted at the general meeting. Shareholders will therefore
need to be protected in many ways. Formation of a holding SE under the SE Regu-
lation is an alternative to a merger.
10.4.2 Mergers
Formal mergers were already discussed in section 5.11.4 above. It is characteristic
of mergers that a company is dissolved without going into liquidation and that the
company transfers to another all its assets and liabilities in exchange for the issue
to its shareholders of shares in the other company and/or a cash payment and/or a