2022-07-31 04:22:42, 回應(0), 人氣(317)The Corporate Merger: What to Know About When Companies Come Together(II)
Updated January 26, 2022
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The Merger: What To Do When Companies Converge
Understanding the Buyout Circumstances
The circumstances of a buyout can also be very important. The investor should get to know the nature of the merger, key information concerning the other company involved, the types of benefits that shareholders are receiving, which company is in control of the deal, and any other relevant financial and non-financial considerations.
While it may seem counterintuitive, owning the company that's being bought out can be a real windfall for investors. That's because if the company being bought has shown respectable performance and has good prospects for the future, a certain amount of goodwill may be involved.2
When investing around a merger, it is important to note that when a merger is announced, the actual closing price often ends up being different than the announced merger price. This is due to the fact that a merger is usually not completed under the initially proposed terms.
Goodwill usually accounts for intangible assets, though if those assets weren't factored into the stock price when you purchased your shares of the company being bought, you can end up on top. Goodwill is a source of confusion for a lot of people, but essentially it is the amount of money a company pays over the book value of another company to purchase it.3
And let's not forget that because intangible assets aren't always easily valued, you can expect that a certain phantom percentage of most companies that have goodwill on their balance sheets may be overvalued. While that's not a good deal for the individual who owns a few shares of the purchasing company, if you own the company being bought, this can be another win for you.
If the company you've invested in isn't doing so well, a merger can still be good news. In this case, a merger often can provide a nice out for someone who is strapped with an under-performing stock. Knowing less obvious benefits to shareholders can allow you to make better investing decisions with regard to mergers.
Importance and Consideration Regarding Your Vote
Keep in mind that a company's decision to merge with another company is not necessarily set in stone. If you're a shareholder in the company, the decision about whether to merge with another company is partially yours. The typical voting scenario for a publicly-held company will usually end with a shareholder vote on the issue of the merger.4
If your analysis and consideration tell you that a merger is a step in the wrong direction, or if it tells you that it might be a great financial opportunity, voting with your shares is the best way to exercise your power over the decision-making process.
Voting rights can be exercised at a company's annual general meeting, or other specially convened meetings, or by proxy.
Non-financial considerations can also be important when looking over a merger deal. Remember: it's not necessarily all about money. Maybe the merger will result in too many lost jobs in a depressed area. Maybe the other company is a big polluter or funds political or social campaigns that you don't support.
For most investors, the concept of whether or not the newly formed company will be able to make you money is certainly a big deal, but it might be worthwhile to keep the non-financial issues in mind because they might be important enough to become deal-breakers.
Analyze Financial Reports
Even though there aren't a lot of people who enjoy reading financial statements, examining key information for each company involved in the merger is a good idea. Look over and analyze the company if you're not familiar with it, and determine for yourself if it is a good investment decision. If you find that it isn't, chances are that the newly formed company won't be terribly good either.
When analyzing financial statements, make sure to look over the most up-to-date financial statements and annual reports from both companies. A lot can happen since the last time you took a look at your company's financials, and new information can be a key to determining what influenced the other company's interest in a merger.
Understanding the Changing Dynamics of the New Company
The new company will likely have a few noticeable changes from the original. One of the most common situations is the change in leadership. Certain concessions are usually made in merger negotiations, and the executives and board members of the new company will change to some degree, or at least have plans to change in the future. When you cast your vote for a proposed merger, remember that you're agreeing to adjoining conditions like leadership changes as well.4
The Bottom Line
As mentioned before, when it comes down to it, your vote is your own, and it represents your choice for or against a merger. But keep in mind that, as a shareholder of an involved company, your decision should reflect a combination of best interests for yourself, the company, and the outside world. With the right information and relevant consideration of the facts, coming out ahead in the face of a merger can be a realistic goal.