Series 79 practice questionmediumMerger Consideration
A fixed-value collar provides that the exchange ratio adjusts below the lower bound. If the acquirer's price falls below that bound, what occurs?
- AThe deal is automatically terminated.
- BThe target shareholders receive fewer shares.
- CThe exchange ratio adjusts so target shareholders receive more acquirer shares.✓ Correct answer
- DThe consideration switches from stock to all-cash payment.
Explanation
Why C — The exchange ratio adjusts so target shareholders receive more acquirer shares.
Under the stated fixed-value collar, the ratio adjusts upward and target holders receive more shares. A switch to all cash is not automatic.
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