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Any Stock Market Gurus?
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Any Stock Market Gurus? - July 16, 2011, 12:08 AM

Well I ask because I want to find out what would happen if a decent size publicly traded company is being bought by a privately traded company? What happens to your stock options? If the merger is the biggest in history for that industry, would you buy a ton of their stock?


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July 16, 2011, 11:09 AM

buy low.


sell high.


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July 16, 2011, 11:15 AM

It depends on the deal. If they private company is paying cash for the stock, they will often cash out the in-the-money options as well. There may be provisions that provide for immediate vesting of unvested options as well, so that could be a nice bonus. Will the private company remain private after the deal? Is it a private equity firm buying? It is unlikely that if the company remains private that they would roll the options over since there will be no market for the options after the deal, but it is not impossible.
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July 16, 2011, 11:25 AM

BUY!!!!


No, wait.....SELL!!!


I Have Nothing To Contribute.

Chicks are like jobs...all the good ones are taken and they can't pay you enough to do the ones that are available.
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July 16, 2011, 11:30 AM

Quote:
Originally Posted by rddy
It depends on the deal. If they private company is paying cash for the stock, they will often cash out the in-the-money options as well. There may be provisions that provide for immediate vesting of unvested options as well, so that could be a nice bonus. Will the private company remain private after the deal? Is it a private equity firm buying? It is unlikely that if the company remains private that they would roll the options over since there will be no market for the options after the deal, but it is not impossible.
The buying company is paying cash and has no debt whatsoever. The purchase is going to be a little over $200M. They will stay private after the purchase and remain the largest in their industry. Buyer is not an equity firm. The buying company has one owner and he owns many other big companies and is worth about $6B. Would you buy?


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July 16, 2011, 11:49 AM

I was thinking that you were talking about options granted to employees, not publicly traded options. I would not buy any. I am not a speculator and any deal that is already public has been priced in to the options. Any deal that is not already public would be trading on insider information and/or speculation neither of which would I do. But that's just me.
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July 16, 2011, 12:34 PM

I see. It's not exactly insider info since the possibility was leaked into an industry magazine but the fact that it the deal did go through has not been made public yet. So I'm a bit inquisitive.


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July 16, 2011, 05:01 PM

Quote:
Originally Posted by turkishexpress View Post
So I'm a bit inquisitive.
and a bit of an insider


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July 17, 2011, 11:45 AM

Turk, this is a complicated topic and the ones that can give you the most likely scenario/outcome/recommendation are those that work directly with Mergers and Acquisitions, not just people that understand the basics of the stock market. This is more about business and contract law.

A public company is Public and that can only be changed through vote/proxy of the current shareholders. Previously issued Stock Options have defined parameters. An acquisition agreement will define how these options will be addressed. They do not usually disappear but their timeframe to activation may be shortened.

Now Public stock is much different than Private stock. Its worth is more defined by the real life value of the company rather than by trends and volume. It's liquidity also varies, some companies have a stated buy back policy while others leave you to your own devices.

Whether buy or sell depends on your investment strategy. Private is more geared towards stability and steady balanced growth in line with corporate performance but not as liquid. Public, well, you know.

Btw, what you are doing is not insider trading unless you are Basing your decision on information acquired (directly or indirectly) from the members that actually have a say in the outcome. Rumors do not qualify as insider trading since the same rumors you hear are those that everyone else does too and do not offer any assurances.

Short answer...if you want long term stability and growth AND you trust the new management then buy. But make sure you read Up on the company's recent annual reports to get an idea of their current financial strength (if they sold cause of "need" or near insolvency then the stock value could actually go down).
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July 17, 2011, 01:00 PM

I have been through this twice; once with BET when the went Private > Public > Private and another time when Sirius was being sized up for a take over by a private equity firm.

Noo is somewhat correct. A public company can only be changed through a vote/proxy, however most shares or options you buy on the open market are Common Shares, non-voting stock, not the Class-A shares given to officers and high-net worth investors in the company.

If you do happen to have voting rights that convey with the Common Shares it's usually limited in scope and power. This prevents occurrences such as Green Mail and Hostile Takeovers (or they'll insert a Poison Pill clause). For buy out issues as important as this rights fall to Class A shareholders (typically your Board, Officers, & High Net Worth Investors) who can overrule the Common Shareholders wishes.
Boards have done it before.

No matter what happens the Bond Holders will always be paid out first. So pay very close attention to the public company's cash balance and their debt. It could be one of those deals where it's a distressed buyout.

Typically the company being acquired (Co. X), their stock's value will increase sharply upon release (or rumor) of news of the acquisition by another company (Co. Y). This is done on the expectation that the Co. Y will overpay the current spot price on the market or strike price on the market the day Co. Y tendered a formal offer to Co. X.

As for your shares. one of two things may happen:
- The day the sale is executed, the shares are dilisted on the exchange and automatically dissolve.

(1) In a few weeks you'll receive a letter in the mail with a redemption package and the value of the stock per the buyout terms. Return the packet and a few weeks later you get a check in the mail.


(2) Your brokeage account will automatically handle the swap the following day. Your shares of Co. X will disappear and be replaced by the cash value equivalent.



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Last edited by Heist; July 17, 2011 at 01:02 PM..
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July 17, 2011, 02:05 PM

Quote:
Originally Posted by Heist View Post
I have been through this twice; once with BET when the went Private > Public > Private and another time when Sirius was being sized up for a take over by a private equity firm.

Noo is somewhat correct. A public company can only be changed through a vote/proxy, however most shares or options you buy on the open market are Common Shares, non-voting stock, not the Class-A shares given to officers and high-net worth investors in the company.

If you do happen to have voting rights that convey with the Common Shares it's usually limited in scope and power. This prevents occurrences such as Green Mail and Hostile Takeovers (or they'll insert a Poison Pill clause). For buy out issues as important as this rights fall to Class A shareholders (typically your Board, Officers, & High Net Worth Investors) who can overrule the Common Shareholders wishes.
Boards have done it before.

No matter what happens the Bond Holders will always be paid out first. So pay very close attention to the public company's cash balance and their debt. It could be one of those deals where it's a distressed buyout.

Typically the company being acquired (Co. X), their stock's value will increase sharply upon release (or rumor) of news of the acquisition by another company (Co. Y). This is done on the expectation that the Co. Y will overpay the current spot price on the market or strike price on the market the day Co. Y tendered a formal offer to Co. X.

As for your shares. one of two things may happen:
- The day the sale is executed, the shares are dilisted on the exchange and automatically dissolve.

(1) In a few weeks you'll receive a letter in the mail with a redemption package and the value of the stock per the buyout terms. Return the packet and a few weeks later you get a check in the mail.


(2) Your brokeage account will automatically handle the swap the following day. Your shares of Co. X will disappear and be replaced by the cash value equivalent.
Quote:
Originally Posted by nootherids View Post
Turk, this is a complicated topic and the ones that can give you the most likely scenario/outcome/recommendation are those that work directly with Mergers and Acquisitions, not just people that understand the basics of the stock market. This is more about business and contract law.

A public company is Public and that can only be changed through vote/proxy of the current shareholders. Previously issued Stock Options have defined parameters. An acquisition agreement will define how these options will be addressed. They do not usually disappear but their timeframe to activation may be shortened.

Now Public stock is much different than Private stock. Its worth is more defined by the real life value of the company rather than by trends and volume. It's liquidity also varies, some companies have a stated buy back policy while others leave you to your own devices.

Whether buy or sell depends on your investment strategy. Private is more geared towards stability and steady balanced growth in line with corporate performance but not as liquid. Public, well, you know.

Btw, what you are doing is not insider trading unless you are Basing your decision on information acquired (directly or indirectly) from the members that actually have a say in the outcome. Rumors do not qualify as insider trading since the same rumors you hear are those that everyone else does too and do not offer any assurances.

Short answer...if you want long term stability and growth AND you trust the new management then buy. But make sure you read Up on the company's recent annual reports to get an idea of their current financial strength (if they sold cause of "need" or near insolvency then the stock value could actually go down).
Good information guys! Thanks. Now I gotta decide what to do...


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July 17, 2011, 08:00 PM

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Good information guys! Thanks. Now I gotta decide what to do...
If you have an inside line on this, go for it.
Be careful the rumor you're acting on isn't a case of fomenting. Pump and dump schemes are a dime a dozen and one of the easiest and best cover stories is to start a rumor of a Private Company / Private Equity buying a company because private co.'s do not have to report to the SEC or make statements.

What they do have to do is file a Schedule 13D (Hostile Takeover) or Schedule 13G (Friendly Takeover) if the acquiring company takes more than a 5% position of the total shares in the float on the market, or if they acquire majority ownership outright.

No 13D/G filing - you know it's a smokescreen and someone is trying to bump the stock price up. Still and opportunity for you to pinch some profit. But you better get out before whomever was trying to manipulate the price or started the rumor tries to unload the position and pummels the price.



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July 17, 2011, 08:26 PM

A Schedule 13G is not for a friendly takeover, nor is a Schedule 13D necessarily for a hostile takeover. A Schedule 13G is for passive and less than 20% holders. For the most part, anything else requires a Schedule 13D. And you'll find that most public company common stock have voting rights which are not limited in scope and power. In fact, the voting rights of convertible preferred shares are typically based on the voting rights of the common shares into which they can be converted. There are always exceptions where companies issue super voting shares, like Berkshire Hathaway, but that is far from the norm.
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July 17, 2011, 09:04 PM

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A Schedule 13G is not for a friendly takeover, nor is a Schedule 13D necessarily for a hostile takeover. A Schedule 13G is for passive and less than 20% holders. For the most part, anything else requires a Schedule 13D. And you'll find that most public company common stock have voting rights which are not limited in scope and power. In fact, the voting rights of convertible preferred shares are typically based on the voting rights of the common shares into which they can be converted. There are always exceptions where companies issue super voting shares, like Berkshire Hathaway, but that is far from the norm.
If a 13D is filed it means the owner of the shares plans to take an activist role in the company. I've yet to see a friendly activist or one that remains friendly for very long. They either try to jettison management, lobby aggressively to sell of pieces or assets of the company, insert their own hand picked people on the board (and we all know how this turns out), or start a proxy battle.

I did say companies issue common stock which convey voting rights, even the same as the preferred Class-A shares, but companies have inserted poison pill clauses to blow-up votes not going in the direction in the case of a hostile bid.



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