Series 79 practice questionmediumMerger Consideration
A merger agreement offers target shareholders the choice of cash, acquirer stock, or a mix. What risk do target shareholders face if too many choose the same form of consideration?
- AThe deal is automatically canceled.
- BShareholders may be forced into a pro-rata allocation if oversubscription occurs.✓ Correct answer
- CShareholders may receive less than the guaranteed minimum consideration.
- DShareholders can change their election after the election deadline.
Explanation
Why B — Shareholders may be forced into a pro-rata allocation if oversubscription occurs.
If too many shareholders elect the same form of consideration, a pro-rata allocation is used to allocate that form among shareholders, which may result in some shareholders not receiving their full preferred amount. This does not mean shareholders receive less than the guaranteed minimum consideration, but rather that their election may be partially filled.
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