What is a control premium?
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The control premium is the excess paid by a buyer over the market price of a target company in order to gain control. This premium can be substantial when a target company owns crucial intellectual property, real estate, or other assets that an acquirer wishes to own.
A “purchase premium” in the context of mergers and acquisitions refers to the excess that an acquirer pays over the market trading value of the shares being acquired.
A control premium is an amount that a buyer is sometimes willing to pay over the current market price of a publicly traded company in order to acquire a controlling share in that company.
Why is there a control premium?
Control premium enables to acquire shares from existing shareholders as the price offered for the shares is more than the market price. It helps to complete the acquisition before more competitors enter the deal. It helps in acquiring the controlling interest.
Where does control premium come from?
Control premiums are typically seen in takeover bids of public companies, but can be present in situations where shareholders of private businesses pay a premium to obtain majority interest or a controlling position in a company.
Computation of the control premium using the following equation: = (Target Invested Capital – ((Shares Outstanding * Unaffected Price) + Total Interest Bearing Debt and Preferred Stock)) / ((Shares Outstanding * Unaffected Price) + Total Interest Bearing Debt and Preferred Stock)
Broadly speaking, a premium is a price paid for above and beyond some basic or intrinsic value. Relatedly, it is the price paid for protection from a loss, hazard, or harm (e.g., insurance or options contracts). The word “premium” is derived from the Latin praemium, where it meant “reward” or “prize.”
What is a control premium precedent transactions?
Investment bankers calculate the control premium of Precedent M&A Transactions to approximate the appropriate offer price premium for a target company. Typically, the difference between the share price one day prior to announcement and the offer price is used.
What is a control premium in precedent transactions?
Control premium refers to an amount that a buyer is willing to pay in excess of the fair market value of shares in order to gain a controlling ownership interest in a publicly traded companyPrivate vs Public CompanyThe main difference between a private vs public company is that the shares of a public company are traded …