The Sale of Small Firms: A Multidimensional Analysis

Abstract

In the past 20 years, the open bid auction hasemerged as the central technique for small firm sales. Two items are for sale,the dividends rights and the control of the firm through voting rights. Thisexamination indicates how a seller can take into account the impact of votingrights and dividends in a bidder's valuation. The choice of the best security voting structure reflects the connectionsbetween voting rights/private benefits and dividends rights/public benefits.From the seller's viewpoint, the optimal structure may sometimes differ fromthe traditional one-share-one-vote structure. A model of analysis is proposed,functioning as a tool to screen candidates and maximize the expected revenue ofthe seller. The one-share-one-vote structure is not always optimal from the seller'sstandpoint, but it ensures that the most efficient candidate takes control ofthe firm. By designing a specific security voting structure, the seller maychoose between two objectives: if the seller wants to maximize revenue, he orshe should keep some shares; if the seller wants to sell to the most efficientcandidate, all the assets must be sold. (CBS)

Keywords: Stock dividends, Security voting structure, Auctions, Voting rights, Sale of a business, Bids, Securities offerings, Firm control, Valuation