Control premium

Control premium is an amount that a buyer is usually willing to pay over the current market price of a publicly traded company. Contrary to a widely held view, this premium is not justified by the expected synergies, such as the expected increase in cash flow resulting from cost savings and revenue enhancements achievable in the merger. Synergies are achieved whenever two companies combine their operations and therefore, should not be included in the control premium. It is accepted that synergies should be captured by the shareholders of the acquirer. The justification for the control premium lies in the expected value that the acquirer expects to achieve from obtaining control and results from the changes in the company management that will follow the acquisition.

Normally, the control premium is industry-specific and amounts to 20–30% of the market capitalization of a company calculated based on a 20-trading-day average of its stock price.


Company XYZ has 1,000,000 shares outstanding. The 20-day average price per share is $1. To buy control, an acquirer usually needs to consolidate more than 50% of the shares. Say, the buyer wants to acquire 60% of the stock. The market price will be 600,000 * $1.00 = $600,000. However, the buyer estimates that he will be able to realize 25%-synergy, so the maximum price he is willing to pay is $600,000 * (1 + 25%) = $750,000

See also

External links

Wikimedia Foundation. 2010.

Look at other dictionaries:

  • control premium — Refers to the pricing phenomenon by which shares that carry the power to control a corporation are more valuable per share than the shares that do not carry a power of control. The control premium is often computed not on a per share basis but on …   Black's law dictionary

  • control premium — kontrolės priedas statusas T sritis turto vertinimas apibrėžtis Turimas kontrolės teises atitinkanti suma ar procentinė dalis, kuria verslo subjekto kontrolinio akcijų paketo vertė viršija to paties akcijų skaičiaus nekontrolinio akcijų paketo… …   Lithuanian dictionary (lietuvių žodynas)

  • Control (management) — Controlling is one of the managerial functions like planning, organizing, staffing and directing. It is an important function because it helps to check the errors and to take the corrective action so that deviation from standards are minimized… …   Wikipedia

  • Premium Raid — An attempt by a corporate raider or acquiring company to procure a large block of shares in a target company, by offering its shareholders a significant premium over the current market value of their shares. This tactic is most likely to be used… …   Investment dictionary

  • premium raid — An attempt to acquire a large portion of a company s stock to gain control by offering stockholders a premium over the market value for their shares. Bloomberg Financial Dictionary …   Financial and business terms

  • Windows Vista Home Premium — Windows Vista Famille Microsoft Windows Type de noyau Noyau hybride État du proje …   Wikipédia en Français

  • Trendsetter - premium edition — Dieser Artikel oder Abschnitt ist nicht hinreichend mit Belegen (Literatur, Webseiten oder Einzelnachweisen) versehen. Die fraglichen Angaben werden daher möglicherweise demnächst gelöscht. Hilf Wikipedia, indem du die Angaben recherchierst und… …   Deutsch Wikipedia

  • Union wage premium — A union wage premium refers to the degree in which union wages exceed non union member wages. Union wage premiums are one of the most researched and analyzed issues in economics especially in labor economics… …   Wikipedia

  • GM Premium V engine — Infobox Automobile engine name=GM Premium V aka=Cadillac Northstar manufacturer=General Motors production=1991– class=DOHC 90° V8/V6 predecessor=Cadillac HT V8 LQ1 V6 similar=Jaguar AJ V8 Ford Modular V8 Ford/Yamaha V8 Chrysler PowerTech V8… …   Wikipedia

  • Renault Premium Long Distance — Saltar a navegación, búsqueda Renault Premium Ruta Tipo de automóvil: camión Motor: Gasoil: 11 litros DXi Potencia: 370 CV, 410 CV y 450 CV Caja de cambios …   Wikipedia Español

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.