Do target shareholder agreements induce bidders to pay higher premiums?

In listed companies, some shareholders can be signatories to agreements that govern their relations. Such agreements are often viewed as means of insulating the firm from the market for corporate control. Specific provisions (namely concerted action, pre-emptive buying rights and repartitioning of board seats) are indeed likely to influence the outcome of takeovers. Using a sample of French deals, this paper investigates the impact of shareholder agreements on takeover premiums. A shareholder agreement is in force in 27.1% of target companies. A positive relationship between shareholder pacts and takeover premiums is observed. This result is robust to the use of an econometrical specification which treats as endogenous the existence of a shareholder agreement. This finding suggests that shareholder pacts dramatically increase the negotiating power of target shareholders.ou