Frequently Asked Questions
General question
In this unit, a frequent question is regarding the number of shares to consider while calculating the price of each share in the merged company. Students can obtain information regarding the merger/acquisition from the question itself and obtain an understanding as to what will happen to the acquired company’s shares. For e.g. where the acquirer buys the target and the target ceases to exist, its shares disappear. In this case, the total number of shares of the acquirer firm stays constant.
On the other hand, if the target is paid in shares instead of cash, the target company would receive new shares in the new merged firm and so the quantity of shares to consider for the merged company would be the number of shares the merged company now has in total (hence, include any shares issued as payment to the target company, and exclude any shares that disappear after the acquisition).