A complete idiot's question regarding takeovers

[ans25]

Hi,
Apologies for sounding dumb but im v new to the game,
so just wondering :

If company X is taken over by Company Y.... how does this affect both companies share price.... short term and long term?

thank-you for your time and really appreciate this website.

 

[prawn_86]

Re: A complete idiot's question

Hello Ans,

Welcome to ASF.

I dare say that not enough info has been included in your example for anyone to make a decent comment.

It would depend on purchase price, current prices of both companies, predicted time frames, potential synergies, regulations, counter offers, etc etc.

About the only thing i could say is that the company being taken over, their market price will go to what the offer price is (or very close to it), in the short term.

 

[ans25]

Re: A complete idiot's question

okay if that is the case does not it not make sense then to snap up shares for any company being taken over and then sell out as soon as that offered share price is reached.... or does this sound like a quick rich scheme with risks

not that i own any shares yet but my example is oxr and zfx... and there proposed merge... in other words oxr buying zfx if im not wrong

 

[Trembling Hand]

Re: A complete idiot's question

okay if that is the case does it not make sense then to snap up shares for any company being taken over and then sell out as soon as that offered share price is reached.... or does this sound like a quick rich scheme with risks

Yes it does but the problem is getting in before the announcement. Howz ya crystal ball?

 

[prawn_86]

OXR is completing a 50/50 merge with ZFX, not really a takeover. I suggest you read the appropriate threads to get more info

I think you would also find that most traders try to exploit arbitage opportunities like you have discussed, and it is very rarely that they occur, more than 1 or 2 cps.

 

[ans25]

okay thanks, still continuing on with the oxr and zfx example, if it is a 50 50 merge then would that mean in principle that both sp of both companies would be equal just before merging?
Or do we take the average of the 2 sp and thats where the merged company will start... Im kinda finding it hard to understand what happens to the shares of one company

 

[prawn_86]

Once again I suggest you actually read what they have announced.

OXR will put up 3.something shares for every 1 ZFX share or something.

Read what they have to say...

 

[bvbfan]

It depends on what the 50:50 is.

OXR ended up paying about a 13% premium to ZFX holders.
I'm not happy about that being a long term OXR holder who is bullish copper, with it trading at $4 today too.

There is still a trade on this I feel.
ZFX are paying a FF 35c dividend so you could go long ZFX pick up the dividend and still get into OXR (effectively the new company) for about 3.40 based on close prices today.

 

[mayk]

Just to be clear, sometimes mergers are not successful. GBG and SDL springs to mind. During merger talk SDL(.75) GBG (1.50) [2:1] after merger talk collapsed today SDL(.19) GBG (.70).

So getting into one company shares to get into the pants of other company is risky..Imagine if you bought SDL to get into GBG, in this example.