Look at a recent example of a merger announcement, and log on to the website of
ID: 2729307 • Letter: L
Question
Look at a recent example of a merger announcement, and log on to the website of the acquiring company. What reasons does the acquirer give for buying the target? How does it intend to pay for the target—with cash, shares, or a mixture of the two? Can you work out how much the target’s shareholders will gain from the offer? Is it more or less than would be the case for an average merger? Now log on to finance.yahoo.com and find out what happened to the stock price of the acquiring company when the merger was announced. Were shareholders pleased with the announcement?
Explanation / Answer
Definite merger agreement took place between Ares Capital Corporation and the American capital Ltd for an transaction amounting to $3.4 billion. The purpose of the merger is expand and enhance the position of Ares Capital as the leading company in the business development and leading direct lender in the middle market with an investment which accounts for more than $13 billion.
The shareholders of American Capital shareholders receive consideration of almost $14.95 per fully diluted share and $3.43 billion in cash. Thus it represents premium of $11.4% pertaining to the closing price of the American capital. The closing stock price of the Ares Capital accounts for $15.19 and the shareholders will own almost 26.1% underlying the combined company. Hence, from the above statistics it is ascertained that the shareholders are pleased with announcement as they received handsome premium on their investments and ownership rights in the combined company.
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