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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> 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).
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