Series 79 practice questionhardMerger Consideration
A merger consideration includes a floating exchange ratio structure with a collar. If the acquirer's stock price falls below the collar's lower bound, what is typically the result for target shareholders?
- AThey receive more shares to maintain fixed value
- BThey receive fewer shares based on the new ratio
- CThe merger is automatically terminated
- DThey receive a fixed number of shares, and the value falls below the agreed minimum✓ Correct answer
Explanation
Why D — They receive a fixed number of shares, and the value falls below the agreed minimum
Once the collar is breached, target shareholders generally receive a fixed share amount, so their value may decrease if the acquirer's price drops further. It's a trap to assume the exchange ratio always adjusts to maintain value.
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