Mergers and Acquisitions: What Are Your Rights as a Shareholder?

Globally, more companies have begun to utilize mergers and acquisitions as an option to grow and diversify their business or to take advantage of tax loopholes. Thomson Reuters reports that the value of these mergers have reached a staggering $3.27 trillion in 2014.

If you hold stock in a corporation that is acquired as part of a merger, you should evaluate whether the merger will have a positive impact on your investment. Here are some of the things you should consider in making this assessment.

Is the consideration (the amount the shareholder will receive for each share held) a premium over the closing price of the selling company before the deal was announced?
We will typically investigate a deal if the consideration offered to shareholders does not include a premium over the closing price of the selling company’s stock price before the deal was announced. It is common for stock prices to rise or fall immediately after an announcement is made, which is why it is important to evaluate the offer based on the closing price just before the announcement.

How does the consideration compare to the 52-week high of the stock price for the company to be acquired?
Stock prices can rise or fall in the period just prior to the merger, due to speculation of upcoming deals, the timing of the announcement, or the terms of definitive agreements that are actually made. It is important to evaluate the 52-week highs and lows of the selling company’s stock to determine the fairness of the offer.

In a stock for stock transfer, how has the stock price of the purchasing company fared over the 52-week period?
Shareholders should evaluate the historical stock prices of the acquiring company to determine how that compares to the price of the selling company’s stock. It is also important to keep in mind when the deal is expected to close. If the deal is not expected to close for some time, the stock of the acquiring company could change drastically over that time. This could potentially lead to even less compensation for shareholders than was promised to them when the deal is first announced.

How does the offer compare to recent analyst’s target prices?
Analyst’s prices are merely a projection, but can still serve as a good guide to determine if the consideration is fair to the shareholders. The target prices are set based on the market, history of the company and other factors. The Board of Directors of the company to be acquired should be considering similar things when determining if an offer they are accepting is fair and adequate to their shareholders.

Does the deal contain no-shop provisions?
Merger agreements often include no-shop provisions or steep penalties against the company if it seeks other deals. A no-shop provision is a clause within an agreement between a buyer and seller that prevents the seller from shopping around for any alternative buyers before the deal is approved by the seller’s shareholders. These provisions can keep the Board of Directors from seeking other offers that could potentially provide better consideration for their shareholders.

Why would a shareholder participate in a lawsuit?
Shareholder lawsuits are filed to help ensure proper corporate governance and increase transparency in the company. This is an important step in making sure the officers and directors are fulfilling their duties to maximize the shareholder value.

As a shareholder it is important to be aware of what is happening with your stock. You should know that a company has a responsibility to the shareholders to provide a fair price for their shares.


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