Eli Lilly & Co. just announced that they are going to buy Sigilon Therapeutics for $14.92 per share. Why are they buying it for a much higher share price than through the stock exchange where the closed quote was $3.93 per share?
In: 53
For many companies, a large part of their stock are owned by large “institutions” – could be insurance, pension or investment funds etc. These shares are not often traded on the market. What is traded on the market day to day represents a fraction of the shares of the company.
If someone were to come up and purchase all the shares on the open market, it would rapidly drive up the share price. And worse, after doing that the buyer is nowhere close to buying up the “entire company”.
Then there are rules for the market that the regulator sets. In the US, this would be the SEC. If someone intends to purchase a public company in whole, there are ownership thresholds at which they must declare that intention.
Practically speaking, it would be impossible to purchase the company from just open market trades and a serious buyer must ultimately bring a proposal to the board of directors of the target company. This is where all the major shareholders have to be notified and negotiations held on the offer price. Once this price is accepted (only after a shareholder vote is taken, typically), then the rules usually allow for a “forced sale”. All shareholders will be paid the agreed upon price and their shares essentially taken regardless of whether that shareholder agrees to or not. (The rules of this are spelt out in the corporate documents – so everyone who owns shares should make themselves familiar with them. They cannot claim ignorance – buying shares without knowing the rules is no excuse. Buyer beware)
This is a vast simplification of the actual process, of course. But suffice to say, what you suggest won’t really work. When you have to deal with other major (and sophisticated) shareholders being somewhat up front and negotiating openly tends to be a better strategy.
Latest Answers