| From time to time, companies merge with one | | | | eliminated company will not receive shares |
| another. Sometimes, a merger involves a | | | | equal to what they currently have; you might |
| company that you are currently invested in | | | | only receive 1 share in the new company for |
| and there are usually rumors of the proposed | | | | every 4 shares you had in the old company, |
| alliance before it actually takes place. So, | | | | and depending upon the current market price, |
| the question is, how will this event affect | | | | this could actually decrease the overall |
| the value of the stock and what should you | | | | value of your investment, so you might want |
| do? | | | | to sell before the merger takes place) |
| | | | |
| Mergers are made when the result of joining | | | | 3) How much is the acquiring company paying |
| two companies together will increase the | | | | for the smaller company? (If the acquirer is |
| value of both companies. This process is | | | | paying less than or equal to what the smaller |
| also often referred to as an acquisition. | | | | business is worth, this might not be a good |
| Sometimes two businesses that are close to or | | | | sign, but if they are paying a premium for |
| equal in value come together and form a new | | | | the other company, this is a sign that the |
| corporation with new stock. Other times, one | | | | acquisition is remunerative and will increase |
| company in the transaction is significantly | | | | their overall worth) |
| larger than the other, and it buys the stock | | | | |
| of the other company and absorbs all of its | | | | Shareholders will typically be given the |
| assets and businesses by issuing stock from | | | | opportunity to vote on a merger before it |
| the larger company to shareholders of the | | | | takes place. Each share you own will count |
| smaller company. Sometimes cash is paid, but | | | | for one vote. The management of the |
| stock-for-stock swaps are more common. | | | | corporation usually holds most of the shares, |
| | | | so their votes count for the majority, but |
| Knowing how a merger will affect your | | | | you should still consider your vote |
| investment in a certain stock requires that | | | | carefully. You should exercise your right to |
| you first understand the circumstances and | | | | vote, and your decision should be based upon |
| the conditions of the buyout. You should ask | | | | what will be best for the future value of |
| yourself three important questions: | | | | your shares. You should examine the income |
| | | | statement and balance sheet of the other |
| 1) What is the current financial condition of | | | | company involved in the acquisition to get a |
| each company? (If both companies are in good | | | | sense of whether the merger will be |
| shape, then joining them together will likely | | | | beneficial or detrimental. |
| make each entity stronger; if one company is | | | | |
| in trouble, then the other will be saddled | | | | I hope this information will assist you with |
| with the problems of the other) | | | | reviewing the pros and cons of a merger. Put |
| | | | together all of the relevant facts discussed |
| 2) How many shares will you have after the | | | | in this article and you should be able to |
| merger takes place? (Sometimes, if one | | | | ascertain what the consequences will be. |
| company is eliminated after the alliance | | | | Just use your common sense and you should do |
| takes place, the shareholders of the | | | | fine. |