Going public and the ownership structure of the firm

Going public is a complex process with distinct markets for dispersed shares and controlling blocks. It is important to design the sale of new shares with the final ownership structure in mind. An optimal strategy for going public starts with the IPO, which is particularly suited for the sale of dispersed holdings to small and passive investors. The marketing of potentially controlling blocks to active investors should occur subsequently. We develop a framework for evaluating alternative methods of sale and show that discriminating in favor of active investors can raise the market value of the firm for all shareholders. (C) 1998 Elsevier Science S.A. All rights reserved.