Takeover deterrents and Cross Partial Ownership: the case of golden shares

We analyse takeovers in an industry with bilateral capital-linked firms in Cross Partial Ownership (CPO). Before merger, CPO reduces the profitability of involved firms, confirming the “outsider effect” even for minority acquisitions of capital. However, the impact of CPO upon merger profitability is two-sided in a Cournot setting. CPO, by co-integrating profits, increase output collusion leading to anti-competitive effects by facilitating mergers in most cases. Nonetheless, a protective threshold exists for which CPO arrangements can reduce the incentives for hostile takeovers. This has potentially significant regulatory implications. An illustrative example showcases the potential relevance of CPO as a defence against hostile takeovers across different industries