Sentencing private benefits in takeover contest

We present a model of profit diversion into a takeover environment. The model incorporates a legal environment characterized by a probability of being convicted, a monetary sanction (ex-ante protection) and the costs of administrating the takeover (ex-post protection). We show that the extraction of private benefits is reduced by the existence of such a legal environment, which is consistent with a number of empirical studies. It also predicts that legal environment can conduct the bidder to acquire more than 50% of the share due to the impact of the final holding of the bidder on the fine. The paper contributes to the current debate on regulation of white-collar crime. It highlights the trade-off between the ex-post profit diversion and minority protection, and the ex-ante probability of efficient takeovers. But, considering simultaneously two tools of protection, the ex-ante and the ex-post ones, which do not have the same impact, we derive some guidelines in order to analyze the current trend of the US and the EU laws.