Takeover deterrents and Cross Partial Ownerships: 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.” However, the impact of CPO upon merger profitability is two-sided in a Cournot setting. CPO, by cointegrating profits, increases output collusion leading to anticompetitive effects with facilitated 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