Originally Posted by jragosta
It's not common, but there are reasons why a company might decide to sell even at market price (without a premium).
- Shareholders might be concerned that their shares might decline
- Primary shareholder(s) might wish to get out of that business for retirement or to diversify or to use their money elsewhere
- Shareholders might receive shares in the acquiring company which they might perceive as more valuable (even if the market does not)
- Shareholders see synergy between the two companies that makes the merged company more valuable than either component
- True merger of equals rather than acquisition (for example, the United/Continental merger did not involve a significant premium)
As far as selling shares goes, it's not really selling shares, as they receive new shares automatically. As the old shares are delisted, they don't exist anymore. But people may still hold ont o their old shares—if they have paper shares in hand. If not, then they're out of luck.
I bought one share of Pixar before they were bought by Disney just as a keepsake, in a frame. Disney kept after me to exchange that share for one of their own, but eventually gave up. Since the share was worth nothing, I received Disney shares for it. I think there were two and change, but I d t remember exactly right now. They're in one of my accounts.
There are several reasons why a company may be bought out by another, and that will determine how much it will go for. We've been assuming that it's a successful company that being bought. In that case shareholders aren't worried about their shared declining, so the company will go for a premium.
But if the company isn't doing that well, and is being bought out at distress pricing, then no premium might be offered, because the stock price is declining. That's still somewhat unusual, as there's almost always some premium.
As for the merger of equals, well, they call it that, but there is never a merger of equals. One is always pre-eminent. I can think of several offhand that we're called that but weren't.