What does the Aphria-Tilray merger mean for the cannabis industry?
On Dec. 16, 2020, Aphria (APHA) and Tilray (TLRY) announced a merger that has created the world’s largest cannabis company. Both stocks jumped after the announcement as markets welcomed consolidation in an industry marred by perennial losses.
Does a stock-for-stock merger impact the cash position of the acquiring company?
A stock-for-stock merger does not impact the cash position of the acquiring company. There are various ways an acquiring company can pay for the assets it will receive for a merger or acquisition.
How much should Aphria stock have traded at before the merger?
Theoretically, Aphria stock should have traded at 0.8381 times what Tilray traded at before the merger. However, there was an arbitrage opportunity before the merger. For instance, Aphria stock was trading around 0.4115 times Tilray on Feb. 10—less than half of what it should be trading at based on the merger terms.
What are merger Securities and stock swaps?
Merger securities are non-cash assets paid to a company's shareholders in the event that the company is being acquired or is the target of an acquisition. A stock swap is the exchange of one equity-based asset for another. A merger of equals is when two firms of about the same size merge to form a single larger company.
What happens to shareholders after merger?
Whatever the exchange ratio in a stock-for-stock merger, shareholders of both companies will have a stake in the new one. Shareholders whose shares are not exchanged will find their control of the larger company diluted by the issuance of new shares to the other company's shareholders.
Do stocks usually go up after a merger?
When one company acquires another, the stock price of the acquiring company tends to dip temporarily, while the stock price of the target company tends to spike. The acquiring company's share price drops because it often pays a premium for the target company, or incurs debt to finance the acquisition.
Is merger of companies good for shareholders?
Mergers and acquisitions generally lead to an increase in the stock price of the acquiring company but they may also destroy shareholder value.
What happens to my shares in a takeover?
Cash or Stock Mergers In a cash exchange, the controlling company will buy the shares at the proposed price, and the shares will disappear from the owner's portfolio, replaced with the corresponding amount of cash.
Should I sell before a merger?
If an investor is lucky enough to own a stock that ends up being acquired for a significant premium, the best course of action may be to sell it. There may be merits to continuing to own the stock after the merger goes through, such as if the competitive position of the combined companies has improved substantially.
What companies are merging in 2021?
Amazon, Microsoft and Alphabet went on a buying spree in 2021 despite D.C.'s vow to take on Big Tech. Microsoft, Alphabet and Amazon all announced more acquisitions in 2021 than any other year in the past decade, according to Dealogic.
Who gets laid off in mergers?
Mergers and acquisitions tend to result in job losses for employees in redundant areas in the combined company. The target company's stock price could rise in an acquisition leading to capital gains for employees who own company stock.
What are the disadvantages of mergers?
Disadvantages of a MergerRaises prices of products or services. A merger results in reduced competition and a larger market share. ... Creates gaps in communication. The companies that have agreed to merge may have different cultures. ... Creates unemployment. ... Prevents economies of scale.
Do I have to sell my shares if a company goes private?
The Bottom Line You have the right to accept or reject the offer—as long as you know what the consequences are. Most people don't own enough shares to viably reject an offer, and therefore, won't have a big effect on how the company's management will react. In the end, you may even be forced to sell your shares.
What happens to shareholders stock when a company is bought out?
If the buyout is an all-cash deal, shares of your stock will disappear from your portfolio at some point following the deal's official closing date and be replaced by the cash value of the shares specified in the buyout. If it is an all-stock deal, the shares will be replaced by shares of the company doing the buying.
Should you sell stock before a buyout?
The best reason to sell is to minimize your risk. The simple fact is that the majority of gains from buyouts are made on the day of the offer. The next several months will likely only reward you with a few percentage points in added return.
Can I be forced to sell my shares in a company?
In general, shareholders can only be forced to give up or sell shares if the articles of association or some contractual agreement include this requirement. In practice, private companies often have suitable articles or contracts so that the remaining owner-managers retain control if an individual leaves the company.
What happens after a merger?
After a merger is complete, the new company will likely undergo certain noticeable leadership changes. Concessions are usually made during merger negotiations, and a shuffling of executives and board members in the new company often results.
Why do share prices rise during a pre-merge period?
In contrast, shareholders in the target firm typically observe a rise in share value during the same pre-merge period, mainly due to stock price arbitrage, which describes the action of trading stocks that are subject to takeovers or mergers. Simply put: the spike in trading volume tends to inflate share prices.
Why do shareholders of both companies have a dilution of voting power?
The shareholders of both companies may experience a dilution of voting power due to the increased number of shares released during the merger process. This phenomenon is prominent in stock-for-stock mergers, when the new company offers its shares in exchange for shares in the target company, at an agreed-upon conversion rate .
What is merger agreement?
Key Takeaways. A merger is an agreement between two existing companies to unite into a single entity. Companies often merge as part of a strategic effort to boost shareholder value by delving into new business lines and/or capturing greater market share.
How does an acquirer pay for assets?
The acquirer can pay cash outright for all the equity shares of the target company and pay each shareholder a specified amount for each share.
How does the acquirer provide its own shares to the target company's shareholders?
Alternatively, the acquirer can provide its own shares to the target company's shareholders according to a specified conversion ratio. Thus, for each share of the target company owned by a shareholder, the shareholder will receive X number of shares of the acquiring company.
Why is a stock for stock merger attractive?
A stock-for-stock merger is attractive for companies because it is efficient and less complex than a traditional cash-for-stock merger. Moreover, the costs associated with the merger are well below traditional mergers.
What is a stock for stock merger?
What Is a Stock-for-Stock Merger? A stock-for-stock merger occurs when shares of one company are traded for another during an acquisition. When, and if, the transaction is approved, shareholders can trade the shares of the target company for shares in the acquiring firm's company. These transactions—typically executed as a combination ...
What Is A Stock-for-Stock Merger?
Understanding Stock-for-Stock Mergers
- There are various ways an acquiring company can pay for the assets it will receive for a merger or acquisition. The acquirer can pay cash outright for all the equity shares of the target company and pay each shareholder a specified amount for each share. Alternatively, the acquirer can provide its own shares to the target company's shareholders acc...
Example of A Stock-for-Stock Merger
- A stock-for-stock merger can take place during the merger or acquisition process. For example, Company A and Company E form an agreement to undergo a 1-for-2 stock merger. Company E's shareholders will receive one share of Company A for every two shares they currently own in the process. Company E shares will stop trading, and the outstanding shares of Company A will incr…
Stock-for-Stock Mergers and Shareholders
- When the merger is stock for stock, the acquiring company proposes payment of a certain number of its equity shares to the target firmin exchange for all of the target company's shares. Provided the target company accepts the offer (which includes a specified conversion ratio), the acquiring company issues certificates to the target firm's shareholders, entitling them to trade i…
Special Considerations
- A stock-for-stock merger is attractive for companies because it is efficient and less complex than a traditional cash-for-stock merger. Moreover, the costs associated with the merger are well below traditional mergers. Additionally, a stock-for-stock transaction does not impact the acquiring company's cash position, so there is no need to go back to the market to raise more c…