I don’t get this one. If shareholders can purchase acquirer’s shares at deep discount, how is this protecting the target company, and who are the shareholders purchasing the acquirer’s shares from?
If the shareholders can purchase the acquirer’s shares at a deep discount, it is transferring wealth from the acquirer to the target and makes the transaction more expensive. I think they are purchasing the discounted shares in some sort of way that it dilutes the acquirer’s value of the shares.
I still dont get it. Let’s say I am trying to buy you. How does philip.platt shareholders owning MT327 stock make philip.platt a less attractive acquisition target to me? And who who is selling philip.platt shareholders MT327 stock at a deep discount?
Company A wants to buy Company B by offering Company B its shares. Company B goes out to the market, purchases Company A’s shares from the market - and offers it to Company B’s shareholders at a deep discount. If Company A now offers it shares to the Company B’s shareholders - in exchange for Company B’s shares - would there be any takers???
OK that makes sense. Thanks
cpk123 Wrote: ------------------------------------------------------- > Company A wants to buy Company B by offering > Company B its shares. > Company B goes out to the market, purchases > Company A’s shares from the market - and offers it > to Company B’s shareholders at a deep discount. > > If Company A now offers it shares to the Company > B’s shareholders - in exchange for Company B’s > shares - would there be any takers??? this doesn’t look right. all this will do is strip company B off cash (hence assets and equity) and scr** up the ratios which will pull the share prices down; making it easier for A. flip over is an entitlement granted by a firm’s management to its stockholders giving them the right to purchase shares of an acquiring company’s stock at a bargain price in the event of a merger. this will transfer the wealth from acquirer to target which makes the deal unattractive for acquirers share holders as their position will get diluted. the current share holders of target will have an option to purchase the shares of
So the target shareholders would have the right to buy after the merger goes through? That makes more sense.
what part of the curriculum is this question from? to answer it logically, if the target has ownership in the acquirer, then if the acquirer buys the target, it is essentially buying itself partly. but you said the target has purchased acquirer shares for let’s say $10 which is deep discount to acquirer’s shares for $15 market value. so if now acquirer goes and buys target, the acquire has to pay $15 for each share of its own, when target only paid $10. compare this to what acquire would have to pay if target didn’t buy acquirer’s shares. The principle looks like when you are acquiring something you don’t want to pay market price for your own self. I am just making all this up let me know where I should read up on this.
Is there already a current Level 2 thread addressing the implementation of the flip over pill…and if not, can I ask for a rescrub of the above? How the CFAI phrases the flip over ill is counter-intuitive. The way I (and the OP) see it- Here’s a target firm. It faces a hostile overture from an acquirer. I see no part of “hostile” as allowing the cushy privilege of access to a discount on the acquirers shares. It wouldn’t happen on the open market, and I can’t see any existing shareholders of the acquirer firm acquiescing, since they also would want full market price for every share. CPK123’s explanation makes the most sense from threads I’ve read on this. The target firm would have to fork over cash in an open market purchase, which is a detriment, in order to offer its shareholders a supply of discounted shares in the acquirer. The more that target firm shoots itself in the foot with depleting cash, the larger that stockpile of shares becomes. The disincentive now offered to target firm’s shareholders is clear, and the hostile acquirer will either face a prolonged hostile takeover or may slink away in defeat. Investopedia cites that if target firm’s shareholders don’t purchase enough of the discounted acquirers shares, the dilution may not be enough and the poison pill would fail to work. The upshot: You can’t get something for nothing; and so it seems that the takeover firm must divert cash to offer this move as a check-mate on the acquirer’s aggression. rahulv’s offer of a different way to explain it seems to violate the “you can’t get something for nothing” principle. I’m not fully getting what he’s saying. Can anyone kindly clarify from their M&A experience?
I think CP has it right. The Target bribes its existing shareholders by offering the acquirer’s shares at a deep discount so that they are inclined to not vote for a takeover of the target by the acquirer . It is equivalent to paying out a large cash dividend to the shareholders disguised in the form of the acquirers shares
cpk123 Wrote: ------------------------------------------------------- > Company A wants to buy Company B by offering > Company B its shares. > Company B goes out to the market, purchases > Company A’s shares from the market - and offers it > to Company B’s shareholders at a deep discount. > > If Company A now offers it shares to the Company > B’s shareholders - in exchange for Company B’s > shares - would there be any takers??? This is right on.