But first let’s look at the basic differences between stock deals and cash deals. The main distinction between cash and stock transactions is this: In cash transactions, acquiring shareholders take on the entire risk that the expected synergy value embedded in the acquisition premium will not materialize. In stock transactions, that risk is shared with selling shareholders. More precisely, in stock transactions, the synergy risk is shared in proportion to the percentage of the combined company the acquiring and selling shareholders each will own. To see how that works, let’s look at a hypothetical example. wants to acquire its competitor, Seller Inc. is $5 billion, made up of 50 million shares priced at $100 per share. Seller Inc.’s market capitalization stands at $2.8 billion-40 million shares each worth $70. estimate that by merging the two companies, they can create an additional synergy value of $1.7 billion. They announce an offer to buy all the shares of Seller Inc. is therefore $4 billion, representing a premium of $1.2 billion over the company’s preannouncement market value of $2.8 billion. The expected net gain to the acquirer from an acquisition-we call it the shareholder value added (SVA)-is the difference between the estimated value of the synergies obtained through the acquisition and the acquisition premium. Chooses to pay cash for the deal, then the SVA for its shareholders is simply the expected synergy of $1.7 billion minus the $1.2 billion premium, or $500 million.īut if Buyer Inc.
0 Comments
Leave a Reply. |