Companies that merge - stocks?

What happens when you own stock in a company that merges or is bought out by another company?

Your shares will be converted to shares of the acquiring company (or a new company, if it’s a merger) at a ratio defined by the merger contract.

You can receive shares of the acquiring company.
You can receive cash at a specified amount per share.
You can receive a combination of cash and stock in the acquiring company.

It all depends on the deal worked out between the companies. In theory, you can be paid in anything, including stock held as an investment by the company or even inventory. When a client complained about a large capital gain after Budweiser got bought out by Anheiser Busch, I told him to be glad they didn’t decide to pay him in inventory. :slight_smile:

Heh. That said, it’s seldom anything except shares, cash or a combination of the two. When the merger/acquisition is announced in the press, just read a news article from the business press, and it should tell you what the deal will be.

I have seen an acquired company negotiate a supplemental dividend to their shareholders, as well as causing the merged company to initially match the payout to their shareholders. Dividend conditions may occur to placate shareholders in a company that pays a high yield to assure them that they won’t lose dividend income, or have it be interrupted because of the differences in distribution cycles.

(The case I’m thinking of was a royalty trust, so the “dividend” was actually a “distribution”, but people usually blur that distinction.)

I’ve also seen various rights offerings to buy more shares of the acquiring company at prefixed prices after the deal. But these things were in addition to the basic buyout.