Mergers & Acquisitions Experience needed

I worked for a company called SDRC in 1997. EDS bought us out for cash 2-3 years later.

SDRC stock traded $8-$16 a share (usually closer to $8). The buyout was for $25/share. Within minutes of the announcement, the stock jumped from $wherever it was ($12?) to $24.99. Once the transaction completed, my stock position in my 401k was sold at $24.99 (maybe it was $25) and reallocated to my other choices. It was all automatic.

I had sold all my provate shares of SDRC stock prior to this... not sure how people settled taxable accounts. If no better answers come, I can ask a co-worker.

side note- EDS paid $500M for SDRC. EDS sold us about a year later to

3 investment companies for $1 B, then Siemens just bought the entity for $3.5 B last week.

Thanks jIM. The price on CBSS has also jumped up to near the offer price, but it is still about a $1.50 short. I as just trying to squeeze my dollar for all its worth.

If the cash process becomes arduous (sp?) I will simply sell the stock through my broker and be happy with what I got!

That may mean that the market is factoring in a $1.50 as risk that the sale will not go through. If that is the case, you have a choice to make, take the sure thing now at $1.50 under the buyout offer, or risk having the sale fall through, and the price going back down (perhaps well under its previous average).

-john-

Short answer: mergers don't usually close in a month.

Long answer: when a merger is announced the target's share price jumps to within some percentage of the acquistion price. If the merger is posed as a cash merger, the price will be discounted by the short-term interest rate between "today" and the day the deal will close. If it's a stock-for-stock merger the two prices move in tandem, based on the conversion ratio, but there's still that discount.

That's if it's truly a "done deal" and you know the closing date. If there's any uncertainty in the deal, the price will be discounted for that. The uncertainty could be an unknown closing date, and/or a possibility the deal won't make it through the required approvals**.

I don't follow CBSS but you'll want to find out the terms of the deal to see when it'll close. If the closing date is relatively close, such that the discount is greater than you'd earn by investing an equivalent amount in a money-market fund until the closing date, it suggests there's still some risk in the deal. If it's unknown then the current discount reflects the market's guess about when & if it will close.

Let's say the closing date is June 1 2007. You would be cashed out on that date, the shares would disappear from your account and cash put in its place (it sounds like you'd need to make an election to do that). An example of this, this past week, was APCC -- the deal was announced last quarter.

Incidentally "merger arbitrage" is trading around that spread, making bets either for or against the deal going through on the terms the market assumes.

Occasionally another acquirer can come in and make an offer as well. In that case the price could jump above the first acquirer's offer price. I think this happened with a few of the REIT deals recently. In that case selling early would make you miss out on those subsequent gains.

-Tad

** some combination of board approval, shareholder approval, "Hart Scott Rodino" antitrust approval...with a bank there's probably also regulatory approval at the state & federal level, by banking authorities.

Thanks guys. I finally tracked down the transfer company. Merger has been accepted by both companies boards, but not by the necessary gov't bodies. So there's some risk there. Also the cash out is not expected until 4th quarter '07. So there is a discount for time.

$1.50 per share is best you can do waiting for merger to close... I know where my risk would be (sell now!)... but if you are sitting on

1000-2000 shares, then that $1.50 looks slightly more enticing. Still not worth it (if you can get the amount you need, sell now).

Yep, its already sold. Even if it was 100000s, its still only a 2% increase over current market AND it carries risk premium and a 7 month time discount.

Thanks for the quick and concise help today guys.

the other risk is that another bank makes a counteroffer at a higher price, and you lose the upside on this.

A lot depends on how much you need the money, *now*.

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