That was a bit of an odd question to try and phrase so thank you for bearing with me.
So, say I’m Company A and I am buying Company B.
Sure, there could be cash involved, but I am going to fund 90% of the acquisition by giving Company B common stock in my company.
When the merger is completed, wouldn’t those shares just be Company A’s anyway? And if Company B is then considered the largest shareholder because of the transaction, what would happen if Company B just decides to sell all of its shares?
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I don’t think there would be many situations where you would buy a company by giving them a controlling share in your company.
When you buy a company you aren’t really giving the money to the company. You are giving it to the owners / stockholders of the company.
Usually in that scenario the Company A shares given to Company B will be distributed pro rata to Company B’s current shareholders (unless any of them decide to be bought out instead). So then those shareholders hold shares of Company A instead of Company B.
When you buy company B, you pay the owners of company B. The owners of company B are its shareholders.
So the cash and stock that is used to buy company B goes to the shareholders of company B.
When you buy company B, you pay the owners of company B. The owners of company B are its shareholders. So the cash and stock that is used to buy company B goes to the shareholders of company B.
The shares go to shareholders, not the company. Basically, shareholders of company B end up with shares of company A.
> When the merger is completed, wouldn’t those shares just be Company A’s anyway?
No, the things Company B owned would be controlled by the leadership of Company A (inventory, real estate, patents, etc), but not the stock that was traded in exchange. That goes to the previous owner(s) of Company B. In this case it’s like swapping stock in Company B for some amount of Company A instead.
> And if Company B is then considered the largest shareholder because of the transaction, what would happen if Company B just decides to sell all of its shares?
Having trouble parsing that.
It would make no sense to dilute the current Company A stock to that level (giving controlling interest to the owners of B). Each new share makes the existing shares worth less. Profits are divided among all the shares of stock (basically…sometimes certain “classes” of stock get paid first).
Selling requires a buyer. Dumping a lot of shares all at once would tank the price, and they’d get less than if they’d slowly sold a bit at a time. Depends somewhat if the company is buying it’s own stock back or not (using cash on hand to increase it’s own stock value by removing stock from circulation…the opposite of diluting it by creating more shares).
Ok I think I understand this but it has been a couple of years since I did accounting in Uni so bear with me.
I’m going to use people instead (legally the Companies are already people but I digress). Group A (consisting of unspecified number of individuals) has a business and proposes to Guy B that he wants to acquire his business as well. Now Group A doesn’t actually have enough money to buy Guy B’s business but instead proposes they will make up the difference by giving Guy B a large but non-controlling ownership of Group A’s business. So post acquisition, Guy B is still independent. He’s sold everything to Group A in exchange for some cash and some control over Group A’s business.
Now as for selling it, Guy B can indeed sell it to the market. If he does, then ownership of Group A’s business changes hands and that’s all there is to it.
I read some of the other responses and Group A is effectively losing out because they are diluting their control over the business. Let’s say the business made 1 million bucks in the last year. Normally they could distribute that profit to themselves. With Guy B now having some control, some of the profit must given to him. If he sells their shares, then those profits go to Gal C and etc.
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