Merger-this agreement will unite two existing companies into one new company. Mergers and acquisitions are usually done on the expansion of the company, enter new segments and increase market share in order to create shareholder value.
For example, in August 2017, DowDuPont (DWDP) was formed after the merger of Dow Chemical and DuPont have created the world’s largest chemical company by sales.
The merger affect the shareholders of both companies in different ways and depends on several factors, including current economic situation, enterprise size and management of the merger process. However, the terms of the merger may have a different effect on stock prices of each of the parties to the merger.
How Does The Price Of A Stock
The merger of the two companies causes significant fluctuations in the share price of the acquiring firm and the target firm. Shareholders of acquiring firms typically experience a temporary drop in share prices in the days leading up to the merger, while shareholders of target firms, the rise in the value of shares during the period.
The price of shares of new combined company is expected to be higher than that of both the acquiring and target firms, and is generally beneficial for shareholders of target firms that benefit from the obtained value of the shares arbitration. In the absence of adverse economic conditions, shareholders of the combined company generally experiences substantially improve the long-term efficacy and dividends.
Shareholder voting rights and dilution
Shareholders of both companies may experience a dilution of voting rights in connection with the increase in the number of shares issued in merger. This phenomenon is popular in stock mergers when the new company offers their shares in exchange for shares of the target company, although at an agreed rate. The shareholders of the acquirer experience a minor loss of votes, while shareholders of smaller target companies can see significant erosion of their powers in a relatively larger number of stakeholders.
Changes in management
After the merger was completed, the new company probably has at least some noticeable changes in the manual. Certain concessions in the negotiations on the merger, and leaders and members of the Board of Directors of the new company will change to some extent, whether in the beginning or is expected to change in the future.