Cash Mergers
In a cash merger, the target company’s stock will often be converted into cash, as the target company is dissolved and absorbed into the larger company. For example, if Company A is being acquired by Company B, the stock of Company A will be exchanged for a specified amount of cash, which is typically based on the current market price of Company A’s stock.
Stock Mergers
Alternatively, a stock merger may occur, in which the stocks of both companies are exchanged for a certain ratio. For example, if Company B is offering $1.00 for each share of Company A’s stock, then it would hold that one share of Company B’s stock is worth $1.00. In this way, the shareholder of Company A’s stock would receive one share of Company B’s stock for each share of Company A’s stock that they owned.
Tender Offers
Tender offers are another type of acquisition in which the acquirer purchases shares at a premium price. A tender offer is made by the acquiring company, and the shareholders of the target company can choose to sell their shares at the offered price or keep their shares. Generally speaking, tenders are initiated at a price much higher than the current market price, and they often result in a majority of shareholders selling their shares.
Secondary Offerings
In some cases, a company may undergo a secondary offering in order to raise money for the acquisition. This is typically done when an acquisition is particularly large, and the acquiring company does not have the necessary cash to complete the purchase. In these cases, the company may issue additional shares of its own stock, which are then sold to the public in order to raise the money for the acquisition.
No matter which type of acquisition is used, it is typically required that the shareholders of the target company approve the transaction before it can move forward. Shareholders will receive a disclosure document that outlines the details of the transaction for them to review, and shareholders are typically given an opportunity to vote on whether or not to approve the deal.
Taxes
It is also important to note that any profits from the sale of company shares are subject to taxation. Depending on where the company is based, these taxes can vary from country to country.
The Bottom Line
When a company is acquired, the outcome for the stock shares of the company can vary greatly depending on the type of acquisition and other factors. However, it is important to note that in some cases, the shareholders of the acquired company will be entitled to receive some compensation for the shares they hold in the form of cash, additional shares of the acquiring company, or even a combination of the two. Ultimately, it is up to the shareholders to decide if they want to accept the terms of the acquisition.
Additional Disclosure
When a company is going through the process of being acquired, it is essential that the shareholders understand what is going on and the consequences of the acquisition. In order to ensure that shareholders are properly informed of their rights, the company must provide proper disclosure to the shareholders regarding the details of the transaction. This can include providing shareholders with the full terms of the acquisition, as well as all relevant information about the company’s financial position.
Negotiation
In some cases, the shareholders of the acquired company may be in a position to negotiate with the acquiring company for a higher price for the stock shares. This is most common when the acquiring company has the resources to purchase the shares at a premium price, and the shareholders have the leverage to negotiate a higher price.
Share buybacks are also a tool that can be utilized in acquisitions, as they provide an option for shareholders to acquire more shares of the company at a discounted price. In addition, share buybacks can also help to increase the value of the stock, as the company is returning cash to shareholders, which can help to increase the overall market value of the company.
Impact On Stock Price
The impact of an acquisition on the stock price of the acquired company can vary widely depending on the type of acquisition and other factors. Generally speaking, acquisitions tend to be a positive for the stock price, as it can indicate that the company is in a strong financial position and the stock is seen as a good investment.
