Share Prices - Trends when companies merge?
Discussion
I'm not into investing in shares etc, so really don't know much about this, but my wife and I have a number shares in an oil and gas support\engineering company which is due to merge.
We plan to sell 50% of our shares, as we're getting 2 for 1 during the merger. But based on trends and values, are you best selling as soon as the shares float first thing, or give it a few hours or days to settle down?? Perhaps not an easy prediction, I don't know. I believe they will be listed in Paris and NY if that makes a difference with times...
We plan to sell 50% of our shares, as we're getting 2 for 1 during the merger. But based on trends and values, are you best selling as soon as the shares float first thing, or give it a few hours or days to settle down?? Perhaps not an easy prediction, I don't know. I believe they will be listed in Paris and NY if that makes a difference with times...
Edited by scz4 on Monday 16th January 22:04
Company A is buying company B
The shares of B will often increase as people hope company A will have to increase their offer to get the deal done. Pushing up the price of B
The shares of company A can sometimes drop if people think it may take a long period of time for company A to benefit from the aquisition
That's the basic theory.
It sounds as though the company that you own has already accepted the sale and you will receive two shares of company A for each company B that you owned.
This does not mean you have doubled your money in one day
.
But you will usually do OK,
Whether you wish to halve your investment is a different matter.
The shares of B will often increase as people hope company A will have to increase their offer to get the deal done. Pushing up the price of B
The shares of company A can sometimes drop if people think it may take a long period of time for company A to benefit from the aquisition
That's the basic theory.
It sounds as though the company that you own has already accepted the sale and you will receive two shares of company A for each company B that you owned.
This does not mean you have doubled your money in one day
.But you will usually do OK,
Whether you wish to halve your investment is a different matter.
jeff m2 said:
Company A is buying company B
The shares of B will often increase as people hope company A will have to increase their offer to get the deal done. Pushing up the price of B
The shares of company A can sometimes drop if people think it may take a long period of time for company A to benefit from the aquisition
That's the basic theory.
It sounds as though the company that you own has already accepted the sale and you will receive two shares of company A for each company B that you owned.
This does not mean you have doubled your money in one day.
But you will usually do OK,
Whether you wish to halve your investment is a different matter.
That's exactly what's happening. Tomorrow is officially the first day of the new company trading. So just trying to work out our tactics for selling, or not, tomorrow am. The shares of B will often increase as people hope company A will have to increase their offer to get the deal done. Pushing up the price of B
The shares of company A can sometimes drop if people think it may take a long period of time for company A to benefit from the aquisition
That's the basic theory.
It sounds as though the company that you own has already accepted the sale and you will receive two shares of company A for each company B that you owned.
This does not mean you have doubled your money in one day
.But you will usually do OK,
Whether you wish to halve your investment is a different matter.
Do a seacrh on your company A and find the concensus on the deal.
i.e. do the guys that cover this stock think it was a good deal for the buyer.
If they think it was good, it may be worth keeping the new stock.
Alternativly, if you want to sell all or some, consider putting in a high limit sell order before the market opens as the first 30minutes can have some silly prices.
If it doesn't execute, you could then cancel the order and sell at merket (or a more realistic limit sell price).
i.e. do the guys that cover this stock think it was a good deal for the buyer.
If they think it was good, it may be worth keeping the new stock.
Alternativly, if you want to sell all or some, consider putting in a high limit sell order before the market opens as the first 30minutes can have some silly prices.
If it doesn't execute, you could then cancel the order and sell at merket (or a more realistic limit sell price).
jeff m2 said:
Do a seacrh on your company A and find the concensus on the deal.
i.e. do the guys that cover this stock think it was a good deal for the buyer.
If they think it was good, it may be worth keeping the new stock.
Alternativly, if you want to sell all or some, consider putting in a high limit sell order before the market opens as the first 30minutes can have some silly prices.
If it doesn't execute, you could then cancel the order and sell at merket (or a more realistic limit sell price).
Thanks for the advice. i.e. do the guys that cover this stock think it was a good deal for the buyer.
If they think it was good, it may be worth keeping the new stock.
Alternativly, if you want to sell all or some, consider putting in a high limit sell order before the market opens as the first 30minutes can have some silly prices.
If it doesn't execute, you could then cancel the order and sell at merket (or a more realistic limit sell price).
Just to confirm, let's just say we have 10 shares, but will receive another 10 for that share tomorrow. If we put high limit sell order on selling all 10 and it goes through first thing, I assume the second share will still be issued at some point?
I'm not sure when we we'll see the new allocation in the system.
Edited by scz4 on Monday 16th January 23:05
Not sure I quite got that.
Yesterday you had 10 shares of B, Tuesday you should have 20 shares of A.
To sell you must be sure they are "yours to sell".
Depending on the platform you are using, internet, you should see them as holdings, in which case you are fine.
I'm in the US, so my UK trading (when I was there) was always done by telephone or verbally in his office while I emptied his coffee pot.
Maybe a UKer will pop up to assist with the UK mechanics of share issue.
Yesterday you had 10 shares of B, Tuesday you should have 20 shares of A.
To sell you must be sure they are "yours to sell".
Depending on the platform you are using, internet, you should see them as holdings, in which case you are fine.
I'm in the US, so my UK trading (when I was there) was always done by telephone or verbally in his office while I emptied his coffee pot.
Maybe a UKer will pop up to assist with the UK mechanics of share issue.
scz4 said:
That's exactly what's happening. Tomorrow is officially the first day of the new company trading. So just trying to work out our tactics for selling, or not, tomorrow am.
I would wait a few days for the market to become a little less volatile - as a retail client you can rely on getting crap execution in periods of volatility. NickCQ said:
scz4 said:
That's exactly what's happening. Tomorrow is officially the first day of the new company trading. So just trying to work out our tactics for selling, or not, tomorrow am.
I would wait a few days for the market to become a little less volatile - as a retail client you can rely on getting crap execution in periods of volatility. What an anti climax this morning
We've held onto our shares.... with the new allocation and share price, our value is pretty much the same as it was yesterday under company A. Will see how the market responds over the next few weeks, quite a few external factors could influence this. scz4 said:
Thanks for all the advice.
What an anti climax this morning We've held onto our shares.... with the new allocation and share price, our value is pretty much the same as it was yesterday under company A. Will see how the market responds over the next few weeks, quite a few external factors could influence this.
That's not surprising. In theory the market will have correctly adapted to the new price of the company, so it should be quite similar. However as mentioned it can be a bit volatile (both up and down) as the market gets an impression if it correctly priced in the new combined company. It's the same with dividends - the market will generally price in any dividend to be payed out in the days leading up to it, so in theory the company value should drop the same amount as the dividend on the ex-dividend date.What an anti climax this morning
We've held onto our shares.... with the new allocation and share price, our value is pretty much the same as it was yesterday under company A. Will see how the market responds over the next few weeks, quite a few external factors could influence this. NRS said:
scz4 said:
Thanks for all the advice.
What an anti climax this morning We've held onto our shares.... with the new allocation and share price, our value is pretty much the same as it was yesterday under company A. Will see how the market responds over the next few weeks, quite a few external factors could influence this.
That's not surprising. In theory the market will have correctly adapted to the new price of the company, so it should be quite similar.What an anti climax this morning
We've held onto our shares.... with the new allocation and share price, our value is pretty much the same as it was yesterday under company A. Will see how the market responds over the next few weeks, quite a few external factors could influence this. Merger day isn't anything special.
The announcement of the merger, any synergies, the premium paid and regulatory/board approval are all stock price moving events (potentially).
On the day itself there isn't any NEW news so nothing changes.
In short - selling 50% makes no sense!!!! The value doesn't double overnight otherwise everyone would be buying yesterday!!!
walm said:
I am a bit late to this obviously but this is exactly right.
Merger day isn't anything special.
The announcement of the merger, any synergies, the premium paid and regulatory/board approval are all stock price moving events (potentially).
On the day itself there isn't any NEW news so nothing changes.
In short - selling 50% makes no sense!!!! The value doesn't double overnight otherwise everyone would be buying yesterday!!!
Your response makes perfect sense on reflection. I guess there was so hype between fellow colleagues that some money (certainly not double) could be made due to the 2 for 1 offer. Share price has been pretty static today, moving 30 or 40 cents max (around 1%) Merger day isn't anything special.
The announcement of the merger, any synergies, the premium paid and regulatory/board approval are all stock price moving events (potentially).
On the day itself there isn't any NEW news so nothing changes.
In short - selling 50% makes no sense!!!! The value doesn't double overnight otherwise everyone would be buying yesterday!!!
scz4 said:
Your response makes perfect sense on reflection. I guess there was so hype between fellow colleagues that some money (certainly not double) could be made due to the 2 for 1 offer. Share price has been pretty static today, moving 30 or 40 cents max (around 1%)
Were both companies publicly listed (i.e. on the stock market)? If one was not there could be some bigger movements once more information comes out as it will show how good a deal the buying company got, as there would be less information previously available about the company being bought if it was a privately owned company.NRS said:
Were both companies publicly listed (i.e. on the stock market)? If one was not there could be some bigger movements once more information comes out as it will show how good a deal the buying company got, as there would be less information previously available about the company being bought if it was a privately owned company.
Yes both were previously listed. Now approx 44k employees, so a sizable company. scz4 said:
walm said:
I am a bit late to this obviously but this is exactly right.
Merger day isn't anything special.
The announcement of the merger, any synergies, the premium paid and regulatory/board approval are all stock price moving events (potentially).
On the day itself there isn't any NEW news so nothing changes.
In short - selling 50% makes no sense!!!! The value doesn't double overnight otherwise everyone would be buying yesterday!!!
Your response makes perfect sense on reflection. I guess there was so hype between fellow colleagues that some money (certainly not double) could be made due to the 2 for 1 offer. Share price has been pretty static today, moving 30 or 40 cents max (around 1%) Merger day isn't anything special.
The announcement of the merger, any synergies, the premium paid and regulatory/board approval are all stock price moving events (potentially).
On the day itself there isn't any NEW news so nothing changes.
In short - selling 50% makes no sense!!!! The value doesn't double overnight otherwise everyone would be buying yesterday!!!
The 2 for 1 offer just doesn't mean anything.
Imagine you have two companies.
Let's call them TEC and FTI for arguments sake.
TEC is worth 2bn and FTI is worth 1bn (ignore debt for this example).
They merge.
So (ex-synergies) the combined entity is worth 3bn.
Now TEC has 100m shareholders meaning each share is worth 20 and FTI also has 100m shareholders but each share is obviously worth just 10.
If they just added everything together that would be a great deal for FTI holders and a terrible deal for TEC holders since everyone would just hold one share in the combined entity for each share they held before and that share, post-merger is worth 15 (3bn divided by 200m shares).
To account for the fact that TEC is bringing more to the party, they give TEC holders TWO shares in the combined entity.
So now, there are 300m shares outstanding in a company worth 3bn. Each share worth 10.
But TEC holders have TWO for one - so their holding (which used to be worth 20 per share) is still worth 20 but in the form of 2x 10.
FTI holders have the same number worth the same, so no gain or loss for them either.
(In this particular case the value created is from the $400m synergies, which should have given a bump to BOTH shares at the announcement in May. That means that, if the market valued the synergies at 3bn then the combined entity is worth 6bn: 2bn TEC, 1bn FTI + 3bn synergies. The shares would then double in value - AT ANNOUNCEMENT, or as the deal gets ratified - NOT at the point of the merger.)
Yipper said:
The academic literature will tell you, for most mergers:
Buyer = share prices goes down;
Seller = share price goes up.
Most mergers fail or underperform.
As you might expect given most M&A activity is foremost a vehicle for IBDs to generate profit - as has been the case since the mid 20th century when relationship banking became a thing of the past.Buyer = share prices goes down;
Seller = share price goes up.
Most mergers fail or underperform.
Behemoth said:
Yipper said:
Most mergers fail or underperform.
Indeed. The failure rate is around 70-90%. I'd also say true mergers are extremely rare, if they even exist at all. They are acquisitions. The term merger exists solely to placate the workforce.I was unexpectedly surprised last year, with a rare exception to this.
Royal Dutch Shell bought BG.
The BG shareholders who still hold the Shell shares they received, have had a remarkable capital increase, and also a more than trebling of their income.
Jon39 said:
I was unexpectedly surprised last year, with a rare exception to this.
Royal Dutch Shell bought BG.
The BG shareholders who still hold the Shell shares they received, have had a remarkable capital increase, and also a more than trebling of their income.
Maybe, but one year is neither enough time to implement nor to see the result of structural change. It may be just a honeymoon period after the traditional pre-acquisition tart-up. Come back in a 5-10 year timeframe when all the cost has sunk in, margin increase unmaterialised and stage make-up truly worn off...Royal Dutch Shell bought BG.
The BG shareholders who still hold the Shell shares they received, have had a remarkable capital increase, and also a more than trebling of their income.
It's absolutely impossible to generalise....each and every merger is different. I remember years ago when JP Morgan and Chase Manhattan merged....within a couple of years the price of the combined entity was valued at the same as Chase was on its own. Massive destruction of shareholder value.
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