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?
In: 4
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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