When a private company is acquired by a public company, and the acquiring company pays 100% in stock, what stock price of the acquiring company will be used? Is it spelled out in the acquisition contract, is it the share price of the acquiring company on the close date, or something else?
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Maybe another way to put this is, when the acquired company's shares convert, do they convert to the acquiring company's shares at a constant rate regardless of share price fluctuations, or will the acquired company get less shares of the new company if the acquiring company's share price go up before closing? I basically want to know if the acquired company's sale price will be less if the acquiring company's stock price tanks before the shares are converted. Sorry if this is confusing.
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Answer:
When these types of deals are announced, the market is informed of what will be the price of each stock in the transaction or of a ratio of exchange that will be applied to the price of the stock at a certain point in time (like the closing price of the stock in the 1st of December). Therefore you already know what will be the resulting stake of the selling shareholders in the resulting company, because all that matters is the relative value between the two. So if Google purchases Yahoo with a 100% stock, it will issue, for example, 2 shares of Google stock for each share of Yahoo stock (this ratio will have been decided upon in a given date, such as the signing of the transaction, when the transaction was priced). So: Google Shares outstanding: 100 Share Price: 10 Valuation: 100 x 10 = 1,000 Yahoo Shares outstanding: 100 Share Price: 1 Valuation: 100 x 1 = 100 So Google would issue 1 share for every 10 shares of Yahoo, so that the final shareholding structure will be: Google Shares Outstanding: 110 Share Price: 10 Valuation: 110 x 10 = 1,100 Former Yahoo Shareholders Shares Owned: 10 Share Price: 10 Valuation: 10 x 10 = 100 Former Google Shareholders Shares Owned: 100 Share Price: 10 Valuation: 10 x 10 = 1,000
Francisco Souza Homem de Mello at Quora Visit the source
Other answers
It is typically spelled out in the contract, and these types of contracts will stipulate the amount of shares the acquired company will receive, and typically its irrespective of the stock price so as to avoid manipulation - the merger document should detail this, and if it does not, find a new attorney.
Mark Zouvas
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