There are many directions a company can take to expand its operations. Often, two companies opt to combine into one legal entity, joining forces. This is commonly referred to as a merger. Done properly, a merger offers potential advantages through pooled resources and the ability to capture a larger section of the market.
Typically, mergers involve the transfer and exchange of shares rather than cash transactions. So, how do mergers impact company shareholders?
Share prices can rise or fall due to public perception
A merger can have either a positive or negative impact on a company’s share value. This largely centers around the perception of the market. A deal that sparks positive interest from investors and the public is likely to increase the value of shares.
Some shareholders may have their power diluted
A merger will have a significant impact on the structure and corporate governance of a company. The legal documents arising from negotiations will set out the shares to be exchanged and transferred as well as how much control may be diluted to combine the company figureheads. Some shareholders may not be pleased with their new ownership percentages once the merger is complete.
Providing clarity to the shareholders is essential
Markets don’t like uncertainty and this will apply during your corporate merger. Shareholders, management and your consumers need to know exactly where they stand. You’ll need to implement documents that set out the financial terms of the deal, the new structure of the company and how business will be conducted going forward.
As you can see, mergers and business acquisitions can be complex. This is why it’s so important to have legal guidance at each step of the process. We help businesses that are going through a merger. Feel free to contact us for a consultation.