Optimal Equity Stakes and Corporate Control

I show that firms may optimally place their own equity with other firms in anticipation of possible future corporate control activity. In the model, a target and potential acquirer can negotiate before synergy values are learned. I find that equity implements an optimal mechanism, benefiting both firms at the expense of another potential bidder. The stake is limited by the outsider's willingness to investigate the target. The results imply that corporate control may motivate an equity sale even when no takeover activity is apparent at the time or occurs ex-post. I derive results on optimal stake sizes and block pricing