Corporate Pyramids and Stock Price Crash Risk: Evidence from China
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It gives buyers looking to achieve strategic goals an alternative to organic growth; It gives sellers an opportunity to cash out or to share in the risk and reward of a newly formed business. For the buyer, it can:. The goal of this guide is to take a step back from complicated number crunching and shed light on how deals are negotiated, structured and consummated in the real world.
This is how we learned of the LinkedIn acquisition on June 13, Download Full Press Release. Below, we can see how LNKD shares traded in the days leading up to the sale as well as the huge spike in volume and share price on the announcement date:. The premium was Otherwise, why would the seller agree? How did this premium compare to other deals?
LinkedIn will retain its distinct brand, culture and independence. Reid Hoffman, chairman of the board, co-founder and controlling shareholder of LinkedIn, and Weiner both fully support online commodity trading and broker keywords transaction. The transaction is expected to close this calendar year.
Here are the two CEOs talking about the strategic rationale:. In some rare cases, a supermajority is required: As we will see shortly, he committed to voting for the deal ahead of the announcement, so options trading linkedin stock price crash risk vote was a foregone conclusion.
The transaction is expected to close in the second half of It is subject to approval by CVS Health and Aetna shareholders, regulatory approvals and other customary closing conditions. They agree to terms, a merger agreement is signed and the deal is announced.
A less common way to structure a deal is via a tender offer. Learn about tender offers vs mergers. However, there is another way Microsoft could have acquired LinkedIn: In a traditional merger where the target is public which is the case herewe rely on two documents:. The merger agreement is usually filed as an exhibit to the announcement press release 8-K or sometimes as a separate 8-K. Both the merger agreement and proxy lay out in more detail the terms described in the press release.
Specifically, the Microsoft-LinkedIn merger agreement details:. The merger proxy or merger prospectus is much easier to navigate than the merger agreement and options trading linkedin stock price crash risk the primary data source used to understand key terms in the transactions. The termination fee will also options trading linkedin stock price crash risk payable in certain circumstances if the Merger Agreement is terminated and prior to such termination but after the date of the Merger Agreement an acquisition proposal is publicly announced or otherwise received by options trading linkedin stock price crash risk Company and the Company consummates, or enters into a definitive agreement providing for, an acquisition transaction within one year of the termination.
The breakup fee seeks to neutralize this and protect the buyer for the time, resources and cost already poured into the process. At deal announcement, the buyer and seller have both signed the merger agreement — a binding contract for the buyer. Learn more about the breakup fee. Learn more about reverse termination fees. The go-shop explicitly allows the seller to explore competing bids after the merger agreement.
Learn more about no-shops and go-shops. The MAC gives the buyer the right to terminate the agreement if the target experiences a material adverse change to the business. While Microsoft paid for LinkedIn in cash, recall that sometimes companies will use their own stock as currency. The amount of working capital that a seller has on the balance sheet at the announcement date may be materially different from the amount it has at closing.
There was no working capital purchase price adjustment in the Linkedin Microsoft deal. Working capital price adjustments are exceedingly rare in public deals. However, they are a common feature in private transactions. When an earn-out is negotiated, the buyer will explicitly spell out milestones that would trigger additional consideration. The merger agreement also specifies the conversion mechanism. As the merger proxy explains, the exact denominator will be determined as the volume weight 5-day average of MSFT stock prior to closing.
Converted options will also get a new exercise price — namely 3. The merger proxy includes a list of all the entities and individuals that hold significant amounts of target shares. Google, Facebook, Groupon and Zynga are other companies with this type of arrangement. While no other executives had made a formal arrangement at the proxy date, most stayed on and negotiated contracts after the proxy.
But the decision to consummate a deal remains a very options trading linkedin stock price crash risk negotiation process. The merger proxy not only includes the fairness opinion letter, but a summary of backup assumptions, inputs and specific valuation conclusions: Learn all about the fairness opinion.
Broadly, investment options trading linkedin stock price crash risk play a key role in the facilitation of transactions. Get instant access to video lessons taught by experienced investment bankers.
Introduction to mergers and acquisitions Why we wrote this guide Microsoft acquires LinkedIn Form of consideration cash vs stock Calculating the Premium Deal structure Shareholder approval Merger vs.
Stock options and restricted stock Treatment of unvested options and stock based awards i. Asset sales vs stock sales. Used at top investment banks, Wall Street Prep's Premium Package will you set you apart in interviews and on the job. In practice The merger agreement is usually filed as an exhibit to the announcement press release 8-K or sometimes as a separate 8-K. In practice The merger proxy or merger prospectus is much easier to navigate than the merger agreement and is the primary data source used to understand key terms in the transactions.
Fixed and floating exchange ratios. In practice Working capital price adjustments are exceedingly rare in public deals. Learn more about earn-outs. Leave a Comment Click here to cancel reply.