Discussion of Bargeron-Schlingemann-Zutter-Stulz: What is the shareholder wealth impact of target CEO retention in private equity deals? Edinburgh, May 2016 Moqi Groen-Xu, LSE

The paper PE acquirers are more likely to retain target CEOs compared to public acquirers Premiums are higher when the target CEO is retained (in PE deals) Sample of 252 PE deals Is this important? I will now try to tell the story in a different way. (My attempt at a non-technical discussion!)

Legal time for loyalty switch The research qustion Offer Offer acceptance Completion Actual loyalty switch? Legal time for loyalty switch When does the CEO switch loyalty from current shareholders to acquirer? Early switches are an agency conflict: CEOs may negotiate too small a premium This is important because: How are the boundaries of the firm drawn? How to organize a transition of control? A lot of money involved (11%).

Relevance and transaction type Horizontal/vertical Mergers Conglomerate Mergers Private equity acquisitions New job= Old job? Unlikely Sometimes Likely Literature Matsusaka (manufacturing M&A only): Premium + with retention Fich-Officer-Tran (all M&A): no relation between premium and retention This paper

Re-interpretation of the results 1) PE deals have more retention indeed We can use this sample Also other results that point to “no conflict”: Founders more likely to be retained, older CEOs less often (side note on the lack of association with ownership: careful when you measure this variable, CEOs may even exercise out-of-money options for voting rights around the acquisition, Fos-Jiang 2016) 2) Larger premium given retention in PE deals CEOs were loyal No effects of age/founder suggest that premium not only driven by CEO quality Not driven by manipulation

Re-interpretation of the results continued 3) Selection into PE deals Concern: CEOs select PE acquirers because of likely job retention. This actually leads to a lower premium compared to other potential (unobserved) acquirers. no: not more competing bids, no more termination fees compared to other deals (by public acquirers) Here: be careful, PEs are private. Perhaps there is selection into having a private acquirer?

More potential work towards my story Career concerns vs. loyalty switch: are your results stronger if the CEOs do not feel threatened (e.g., when the industry is small and there are not many other obvious candidates for their job, or when the markets are doing well, or when the PE has little experience in this industry) Unobservable CEO quality and selection: Do retained CEOs do better after the acquisition? In other unrelated negotiations? What happens once the PE exits? (Opposite loyalty problem) Has there been any litigation on illoyalty? I would be curious how the lawyers approach this question. Motivation: What is the magnitude of this problem, compared to other agency problems? Whose offer is higher when there are multiple bidders? More analysis on the alternative bidders could strengthen part 3.