Series 79 practice questionhardMerger Consideration
In a merger agreement, a floating exchange ratio provision is most beneficial to target shareholders in which scenario?
- AIf the acquirer’s stock price falls sharply before closing✓ Correct answer
- BIf the acquirer’s stock price remains stable
- CIf a fixed value collar is also present
- DIf the acquirer’s stock price rises significantly before closing
Explanation
Why A — If the acquirer’s stock price falls sharply before closing
A floating exchange ratio adjusts the share count to preserve a fixed dollar value. It therefore primarily protects target holders when the acquirer's stock price falls; when the price rises, fewer shares are issued.
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