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Simple English definitions for legal terms
control premium
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A quick definition of control premium:
A control premium is an extra amount of money paid for shares of a company that give the buyer the power to control the company. This premium is calculated by comparing the cost of acquiring the shares at the market price with the value of the controlling block of shares. It is important for investors who want to have a say in how a company is run, but it can be expensive.
A more thorough explanation:
Control premium refers to the additional amount paid for shares that carry the power to control a corporation. This premium is calculated by comparing the value of the controlling block of shares with the cost that would be incurred if the shares could be acquired at the going market price per share.
For example, if a company's shares are trading at $50 per share, but a buyer wants to acquire a controlling block of shares, they may have to pay $60 per share to gain control. The $10 per share difference is the control premium.
Control premium is often paid in mergers and acquisitions when a buyer wants to gain control of a company.