What happens to shareholders when a company gets bought out?

benbay001

I was just researching Spectris (SXS) and read that they were in talks with another company about a buyout that fell through.

It got me thinking, what happens to company A shareholders when company B buys them out?

Are they paid the price on the day, the price plus a premium, or does the share price collapse?

Do the shareholders get a vote on allowing the buyout?

Thanks in advance

talexuser

A buyout or takeover requires an offer price for the shares (often a premium as incentive if prospects are good), which then needs a majority vote to succeed.

Uxb1

The minority shareholders even if they voted against a deal which has the majority in favour can be forced to accept the offer.
In practice this means their shares are compulsorily purchased from them at the agreed offer price and they get a cheque though the post for their value plus a letter stating all of this and that their share certificates are cancelled and henceforth become null and void.

There are lots of rules relating to takeovers, how they are managed and how offers and counter offers are made and when an offer can be made and when it is not allowed to be made. Also when and indeed when not a minority shareholding by individuals or indeed one individual or company can be forced to accept the offer in such a way as per my para above.

benbay001

Thanks both.

So if a buyout has to be approved by the shareholders and is usually at above market price per share, then a buyout is generally a good thing, correct?

AnotherJoe

No necessarily. Major shareholders might prefer a quick profit to a potential longer term gain

Uxb1

It all depends on the individual shareholder view of the future of the company
They may think the lure of money in their pocket 'now' from the buyer is better than the vague promises of improvements from the existing management.
The buyer will always claim the existing management have got lazy and resting on their laurels and "we" could do so much better: yeah right...well maybe...or not.

Most buyouts are structured so that rather than the existing shareholders receiving cash/cheque for their holding if they sell there is some complex deal where they receive some cash and the rest of the offer is in new shares in the buyers company. If the purchase turns out not to such a good idea and the shares in the buying company go down then the bought out shareholders may be doing worse than if they had rejected the offer and stayed owning the company.
I'm sure others on here will know of famous buyouts which have gone wrong!

As I said previously there are rules and I think you can only improve the offer a few times while the offer is open to encourage wavering shareholders to accept by upping your cash/share deal. Also you cannot endlessly bid for a company so if your offer is rejected you cannot then put in another one until after a certain time has elapsed.

It all gets messy if there is a large minority shareholder who has enough shares to be above the percentage ownership level at which they can be compulsorily bought out if the rest of the shareholder accept - they are then blocking the takeover.

As you can imagine its all rather complex with the various strategies each side employ to either try and block or dissuade shareholders from voting in favour on one side or to encourage them to vote in favour on the other.
There have been some legendary takeover battles in the past in the UK with shareholders being bombarded with papers from all side with offers and counteroffers - gets even more fun when there are multiple bidders for the same company

digerati

I've been screwed over twice with takeovers. First time was a company called SelecTV plc that produced the popular "Lovejoy" and numerous other TV series. Their offer precluded overseas investors from participating and I never got paid out quite a substantial sum. That was back in 1993 and the acquirer was Pearsons. Second screw over was recently when Lonmin was taken over by Sibanye-Stillwater and shareholders were offer a free sharesale, mainly because the shares were moving from London to South Africa. I sent in all the forms but as I'm outside the UK they never got them in time so I'm stuck with South Africa shares. Since I'm transferring to the USA should be interesting what Sibanye-Stillwater's registrar comes back with... US persons can't hold them as they're not registered in the states.

OldMusicGuy

benbay001 wrote: »

So if a buyout has to be approved by the shareholders and is usually at above market price per share, then a buyout is generally a good thing, correct?

For the shareholders of the acquired company, yes. Long term, most takeovers fail to deliver the extra "shareholder value" that the management team say the takeover will deliver. To quote from a Harvard Business Review article: "M&A is a mug’s game, in which typically 70%–90% of acquisitions are abysmal failures."

Reaper

OldMusicGuy wrote: »

For the shareholders of the acquired company, yes. Long term, most takeovers fail to deliver the extra "shareholder value" that the management team say the takeover will deliver. To quote from a Harvard Business Review article: "M&A is a mug’s game, in which typically 70%–90% of acquisitions are abysmal failures."

That has been my experience, the buying company often seem more interested in empire building than adding genuine value. It's much easier to "grow" your company by buying the opposition than competing against them.

The market is usually aware of this. It is quite common for the purchasing companies share price to fall on takeover news.