Explain why Alden would be willing to pay a premium
As explained in our BSZ textbook, decisions that are made within firms are different from decisions that are made in markets where buyers (looking out for their own best interest) trade with sellers (who are likewise looking out for their own best interest). Explain why Alden would be willing to pay a premium
Within the firm, the decisions are made by managers, who may or may not be looking out for the best interests of the firm. For example, in stock corporations we often see a separation between ownership and management. If no single shareholder has the resources to know what management is up to, let alone the power to curb potential management excesses, then management may take advantage of the shareholders. Eventually this may affect corporate profit and stock prices, but in large stock corporations, especially if the firm has some monopoly power, this may take a long time. In other cases, the managers and the workers of a firm may want to keep it going even if it is continually losing money.
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It is usually under these kinds of conditions that we see hostile takeovers. For example, Alden Global Capital (Links to an external site.) (Links to an external site.) is a hedge fund that has specialized in taking over newspapers that were losing money. Recently, Alden has been attempting to take over Lee Enterprises (Links to an external site.), which publishes a series of local newspapers. In the process, Alden has offered to pay any shareholders who are willing to sell their Lee stock as much as a 30% premium above the market close. Explain why Alden would be willing to pay a premium
In this context, your task is to write an essay explaining why Alden would be willing to pay such a premium, and also why and how Lee might resist this offer, which otherwise would clearly benefit the stockholders of the company. As part of your answer make sure to discuss the specific incentives and tactics involved.
Note that you are free to use any and all resources at your command in writing your answer, with the caveat that everything you write must be in your own words, all direct quotes must be properly identified. Explain why Alden would be willing to pay a premium