What is a control premium?
A control premium is the amount of money a buyer agrees to pay above the current advertised price in order to have a controlling or majority share in the company.
Where have you heard about control premiums?
You've probably heard about companies acquiring other companies as part of business expansion strategies. If a company decides that they can use another (sometimes failing) company to their advantage, they'll offer a control premium in order to gain a majority share in that company.
What you need to know about control premiums.
When an investor buys a share of, for example, 51% or more in a business, they buy the right to control and redirect the business, as well as the other benefits of buying a share like dividends and appreciation.
Generally, companies will determine what premium to pay by working out the real worth of the target company and deciding how much extra they're willing to pay to acquire it. This premium increases if there are other interested parties.
Find out more about control premiums.
Control premiums are often used in mergers and acquisitions of companies. Read our guide to mergers here.