I hold some shares in a company that has rumors floating around about the company being acquired by another firm. The shares have bumped up a bit due to these rumors, which makes me a bit nervous, but I am also curious what I should expect if this is real? Should I exit now or after the acquisition. What aspects of this should I be looking into? I don't really know what happens to stock/company post acquisition.I have a valuation for the company I own, so have a good feel for that, but not sure if I should value the combined firm...sounds like a lot of work.Thanks,Jared
Jared,Companies are usually bought out at a premium to what they are trading at in the market. A rough average I believe is somewhere around a 20% premium to the market price. If there are buyout rumors (as opposed to an actual offer at a disclosed price per share) the inferred "buyout premium" is a likely reason why shares are trading higher on the news.When one company buys another company it might use cash, shares, or a combination of cash and shares to fund the purchase. If the company uses cash, your shares will be bought out and exchanged for cash and the transaction will look very similar to just having sold the shares yourself. If the company uses shares, your current shares of the acquired company will get exchanged for shares in the acquiring company. If the acquiring company uses a combination of cash and shares then you'll end up with some shares of the acquiring company as well as some cash.If this happens in a taxable account you might have some current-year tax issues to worry about. If you get bought out for cash you now have a realized short or long term capital gain depending on how long you've held the shares. If it's a stock swap it probably is a tax-free transaction though you'll need to keep track of your cost basis for the new shares for when you do eventually sell. Verify with the acquiring/acquired company's investor relations contact about what your cost basis in the new shares should be and whether or not there are any current-year tax obligations due to the acquisition. You never want to infer when it comes to the IRS!Mike
I agree with Mikes comments, but note there are sharks out there who spread false rumors about a possible sale of the company--to drive up the price. If the deal falls through, share price will fall. So consider selling if you think the actual sale is unlikely to go through. Or may run into trouble with antitrust, etc.Also note that once an offer is made, it can take months for the deal to close. And usually the share price stays close to the offer price. So often its good idea to sell once the offer is firm, unless there is reason to believe a bidding war will increase the price.Similarly, your shares will often be purchased in a tender offer. If you tender your shares and the offer is oversubscribed, the buyer may eventually pay for only some of your shares and return the others. Rather than wait, it is usually better to sell your shares (especially with todays low commissions) rather than accept the tender and wait for your cash.
Thanks for the comments. I am almost certain the share price will drop due to speculation. My target price for this company is higher than the stock is currently, and I feel I have some conservative assumptions, so even if it falls I probably won't sell.Of course all this talk about the share price matching what the offer would be makes me wonder if my valuation of the stock is bogus :).I think I will hang tight and kick myself in 6 months after the stock drops after these rumors go away and the price has not moved up to my target price :)Jared
Well a deal is more certain. I have read that T-Mobile will pay $1.5B and give 26% ownership to Metro PCS.So, how do I value this?Outstanding Shares / 1.5B + Outstanding PCS Shares /( .26 X Market Cap of DT) ????Would appreciate some thoughtWill I receive some cash and then sum number of shares in t-mobile that aggregate to about $43/share in terms of PCS stock?Thanks, obviously clueless here.Jared
Not sure if I am looking at this correctly, but here goes. Metro PCS will pay existing investors about 1.5B, so about $4/share. MetroPCS will then own 26% of the merged company. Here is how I estimate the numbers.If T-Mobile (DT) has a market cap of 12.6 ($/share) X 4.3B Shares = $54B.MetroPCS will do a reverse split, so number of shares is cut in half. I read in the annual report that there are 1B shares authorized and about 360M outstanding. So does this mean there are about 640M shares currently owned. If they do a reverse split does this mean that this number of shares drops to 320M? If so would I then take 26% of T-Mobiles Market Cap of 54B = 14B to determine how much the investors will receive. Then to get what that means on a $/share, would I take the 14B and divide by the number of shares owned (320M) after the split.$14B / 320M Shares = $4/Share$1.5B / 360 = about 4$/shareSo are they saying the stock is worth about 8/share!?Thanks,
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