Corporate Valuation Theory, Evidence and Practice - by M. E. Zmijewski; R. W. Holthause
Merger – Cash vs Shares
When one company acquires another:
- It initiates discussions based on synergistic outcomes, which are seen as the result of the merger;
- There are minimum and maximum limits. The minimum is determined before the purchase of the target object at the existing market price, while the maximum is based on the potential for synergy;
- From such understandings, almost always, the acquiring company gains the full part of the target company’s objectives, while the buyers often negotiate further, especially regarding the remaining zero-sum gain…
When a merger occurs through the exchange of shares, the acquiring organization invests in the target organization’s shareholders, targeting the distribution of risks associated with this operation, while the target gives a signal that its share price is higher than the market price…
The convertible bondholder is committed to the synergistic effect of the merger as a result of the conversion of bonds (see image)
source:
Corporate Valuation Theory, Evidence and Practice
Mark E. Zmijewski; Robert W. Holthausen
Second Edition