We consider the problem of selling a firm to a single buyer. The buyer privately knows post-sale cash flows and the benefits of control. Unlike the case where buyer’s private information is one-dimensional, the optimal mechanism is a menu of tuples of cash-equity mixtures. When the seller wants to screen finely with respect to the private benefits, he makes an offer for the smallest fraction of the company that facilitates the transfer of control. When he wants to screens finely with respect to cash flows, he makes an offer for all the shares of the company.
Just enough or all: selling a firm
KOS, NENAD;
2016
Abstract
We consider the problem of selling a firm to a single buyer. The buyer privately knows post-sale cash flows and the benefits of control. Unlike the case where buyer’s private information is one-dimensional, the optimal mechanism is a menu of tuples of cash-equity mixtures. When the seller wants to screen finely with respect to the private benefits, he makes an offer for the smallest fraction of the company that facilitates the transfer of control. When he wants to screens finely with respect to cash flows, he makes an offer for all the shares of the company.
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How to Sell a Firm 2 December 2015 AEJ.pdf
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