What happens to my shares when the company is purchased by another company?

[hhiusa]

What happens to my shares when the company is purchased by another company? I am not necessarily concerned with the price. Hypothetical: I have invested in a bank. Its shares are trading at $40. Say that I have a suspicion that the bank will be bought out by another bigger bank, hoping to buy good assets. The bigger bank offers $80/share for the bank in which I hold my share. All goes well and the bank is purchased. Is my position closed out at $80/share?

Ex. First Republic Bancorp. was formed in 1985. It went public in 1986 under FRCBC. By 1997, it has $2.2 billion in assets and formed First Republic Bank. In 2007, it was purchased by Merrill Lynch and the banks assets rose to $10 billion. The stock soared on the news. The 1,100 employees retained their positions in the company. The bank was ran as an autonomous wholly-owned subsidiary. Both were later bought by Bank of America.The stock was delisted in 2007. First Republic Bank then relisted itself on Nasdaq once more under FRC at the end of 2010.

 

[zdreg]

either you own bac stock or frh stock or you received cash for your stock. did bac spin off the stock?

 

[Xela]

What happens to my shares when the company is purchased by another company?

In principle, they're unaffected: you still own the same shares in the same company, of which the majority shareholding is now owned by another company.

In some countries, that other company (depending on their own shareholding) can be required by law to offer you the same price for your shares that they offered for other shares they bought (i.e. they are required by law to make the same offer to all shareholders that they make for the controlling interest), in which case you then have to decide whether or not to sell. This is very common.

This position can, however, be varied if a deal is done (like any other, by a majority of the shareholdings) which results in a merger of any kind of the two companies, in which case you can then find yourself the owner of a (usually smaller) number of shares in the company that did the buy-out, etc. These situations typically (but not always) arise when a company effectively uses its own stock (e.g. by "diluting" it) as the "currency" with which it buys another company.

Hypothetical: I have invested in a bank. Its shares are trading at $40. Say that I have a suspicion that the bank will be bought out by another bigger bank, hoping to buy good assets. The bigger bank offers $80/share for the bank in which I hold my share. All goes well and the bank is purchased. Is my position closed out at $80/share?

Only if you choose to sell; not otherwise.

 

[Sig]

What happens to my shares when the company is purchased by another company? I am not necessarily concerned with the price. Hypothetical: I have invested in a bank. Its shares are trading at $40. Say that I have a suspicion that the bank will be bought out by another bigger bank, hoping to buy good assets. The bigger bank offers $80/share for the bank in which I hold my share. All goes well and the bank is purchased. Is my position closed out at $80/share?

Ex. First Republic Bancorp. was formed in 1985. It went public in 1986 under FRCBC. By 1997, it has $2.2 billion in assets and formed First Republic Bank. In 2007, it was purchased by Merrill Lynch and the banks assets rose to $10 billion. The stock soared on the news. The 1,100 employees retained their positions in the company. The bank was ran as an autonomous wholly-owned subsidiary. Both were later bought by Bank of America.The stock was delisted in 2007. First Republic Bank then relisted itself on Nasdaq once more under FRC at the end of 2010.

That particular merger was a combination of cash and shares in Merrill Lynch. If you had owned First Republic Bank then the day the merger closed your First Republic Shares would go away and you'd find some shares of Merrill Lynch and some extra cash in your account. To your original case, yes, you'd end up with $80/share in your account if it was an all cash purchase.

 

[hhiusa]

That particular merger was a combination of cash and shares in Merrill Lynch. If you had owned First Republic Bank then the day the merger closed your First Republic Shares would go away and you'd find some shares of Merrill Lynch and some extra cash in your account. To your original case, yes, you'd end up with $80/share in your account if it was an all cash purchase.

Thank you. So, if it was an all cash purchase, my shares would be cashed out at the agreed upon price? Are the shares converted based upon par value of Merrill Lynch?

Xela said that my position would not automatically be closed out. If I had $10,000 at $40/share and they offered $80/share in cash purchase, would they transfer $20,000 worth of Merrill Lynch to my account? (80/40)*10,000

When First Republic Bank relisted in 2010, my shares would still be in Merrill Lynch or maybe BAC at the time, right? I would not have shares that carried back into FRC. I would have to wait until after the pre-IPO?

 

[hhiusa]

In principle, they're unaffected: you still own the same shares in the same company, of which the majority shareholding is now owned by another company.

In some countries, that other company (depending on their own shareholding) can be required by law to offer you the same price for your shares that they offered for other shares they bought (i.e. they are required by law to make the same offer to all shareholders that they make for the controlling interest), in which case you then have to decide whether or not to sell. This is very common.

This position can, however, be varied if a deal is done (like any other, by a majority of the shareholdings) which results in a merger of any kind of the two companies, in which case you can then find yourself the owner of a (usually smaller) number of shares in the company that did the buy-out, etc. These situations typically (but not always) arise when a company effectively uses its own stock (e.g. by "diluting" it) as the "currency" with which it buys another company.





Only if you choose to sell; not otherwise.

What if the parent relists the child once more?

 

[Sig]

Thank you. So, if it was an all cash purchase, my shares would be cashed out at the agreed upon price? Are the shares converted based upon par value of Merrill Lynch?

Xela said that my position would not automatically be closed out. If I had $10,000 at $40/share and they offered $80/share in cash purchase, would they transfer $20,000 worth of Merrill Lynch to my account? (80/40)*10,000

When First Republic Bank relisted in 2010, my shares would still be in Merrill Lynch or maybe BAC at the time, right? I would not have shares that carried back into FRC. I would have to wait until after the pre-IPO?

That particular deal was maybe a bit confusing, but for example if it was an all cash deal you'd get $X per share of the acquired company you owned. That price would be set in the tender and wouldn't change based on the acquiring company's stock price. Or you could have an all stock deal, maybe the tender would say you get .7 shares of the acquiring company for every share of the acquired company you own. In that case is the acquiring company's stock tanks before the tender is carried out it would negatively impact you because you'd get stock with less than it was at the time the merger was announced. In all cases this happens automatically at your broker, you'll never get stiffed out of your shares or "lose" anything. Of course there are all kinds of tweaks on these 2 basic formats, but in general that's how it works.
Zelda was mostly incorrect on if you have a choice in the matter when it comes to selling your shares. Like every shareholder you get to vote on the deal with your votes based on your holdings. But if the sale is approved by shareholders, most every acquisition has a drag along clause that says you have to participate in the sale even if you didn't vote for it. If that wasn't the case there would be owners of the Maxwell Motor Corporation somehow owning random pieces of Chrysler!

Once the acquisition closes the stock of the acquired company goes away as far as you are concerned. If it is spun off it is a completly separate and independent transaction that in this case just happened to contain the original company name and employees. What you may or may not have held before the acquisition is meaningless regarding what happens after the spinoff, it is a completly independent transaction.

 

[hhiusa]

That particular deal was maybe a bit confusing, but for example if it was an all cash deal you'd get $X per share of the acquired company you owned. That price would be set in the tender and wouldn't change based on the acquiring company's stock price. Or you could have an all stock deal, maybe the tender would say you get .7 shares of the acquiring company for every share of the acquired company you own. In that case is the acquiring company's stock tanks before the tender is carried out it would negatively impact you because you'd get stock with less than it was at the time the merger was announced. In all cases this happens automatically at your broker, you'll never get stiffed out of your shares or "lose" anything. Of course there are all kinds of tweaks on these 2 basic formats, but in general that's how it works.
Once the acquisition closes the stock of the acquired company goes away as far as you are concerned. If it is spun off it is a completly separate and independent transaction that in this case just happened to contain the original company name and employees. What you may or may not have held before the acquisition is meaningless regarding what happens after the spinoff, it is a completly independent transaction.

That makes sense. Thanks

I know someone who sits on the board for company XYZ. When he buys shares is it different than me. He owns common stocks, not preferred stock in XYZ. He thinks they might be purchased at a significantly higher price. He owns 5% of the company. The company is not absorbed, it just becomes a subsidiary and goes private and everyone stays on the board. A few years later, it goes public again. Does his stake in the company remain or does he get bought out with the option buy in the pre-IPO for the second listing? Stock held by insiders is inherently different than those held by the public right? M&A does not always have to be a 100% acquisition right? Like how the Qatari Sovereign Wealth Fund bought 10% of the Empire State building. And so did the Norwegian Sovereign Wealth Fund.

I own 5% of my friends company before it goes public, I still own 5% after it goes public (in the absense of a dilution). And my shares won't disappear if they decide to go private again either. I am just confused why it works there but not in the stock market

I have had chances to buy at private offerings for friends' companies.

 

[Sig]

That makes sense. Thanks

I know someone who sits on the board for company XYZ. When he buys shares is it different than me. He owns common stocks, not preferred stock in XYZ. He thinks they might be purchased at a significantly higher price. He owns 5% of the company. The company is not absorbed, it just becomes a subsidiary and goes private and everyone stays on the board. A few years later, it goes public again. Does his stake in the company remain or does he get bought out with the option buy in the pre-IPO for the second listing? Stock held by insiders is inherently different than those held by the public right? M&A does not always have to be a 100% acquisition right? Like how the Qatari Sovereign Wealth Fund bought 10% of the Empire State building. And so did the Norwegian Sovereign Wealth Fund.

I own 5% of my friends company before it goes public, I still own 5% after it goes public (in the absense of a dilution). And my shares won't disappear if they decide to go private again either. I am just confused why it works there but not in the stock market

I have had chances to buy at private offerings for friends' companies.

I think you're confused on some terms. In most cases insiders buy the same class of shares as everyone else. Preferred stock in an entirely different animal that has some characteristics of a bond and some of a stock. Private companies are also an entirely different animal, as are companies owned by PE funds. Probably worth buying a corporate finance book if you're really interested, it's a complex topic that I can't give justice to on an online post.

 

[hhiusa]

Thank you for your time. I actually understand the private equity side more the public offering side. I suppose I know the how, I just do not understand the why. The why gets very murky. I have read several books on the subject, but they do not scratch the surface of what I am looking for. Corporate finance for dummies does not do the trick. I actually studied economics, but I guess I am not asking my questions succinctly enough.

Do you know of any books that are detailed? I would like to learn why DryShips incorporated in the Marshall Islands and has its headquarters in Greece and is traded in US. They are not traded as an ADR, so they must have a subsidiary here, which makes the taxation very gray. Obviously the Marshall Islands is tax haven, but there more to it.