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Mergers & Acquisitions - How to calculate stock buyout price?

im2bz2p 188 56 December 9, 2011 at 08:29 AM
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Last Edited by im2bz2p December 9, 2011 at 08:45 AM
Hello all,

Does anyone know how to calculate a stock's close price if they are acquired by another company? This question is best illustrated by an example:

Google (GOOG) had announced on Nov. 17 to buy Motorola Mobility Holdings (MMI) for $12.5 billion cash.

It was mentioned that the price per share was $40, but I don't understand how they calculated this.

I thought the calculation would be $12,500,000,000/299,040,000 (number of shares outstanding: http://finance.yahoo.com/q/ks?s=M...Statistics) = $41.80

Can anyone explain? Sometimes in the buyout news articles that I read, they only list the buyout amount (in this case $12.5 billion) and not the price per share, so I was curious how to calculate this. Maybe they are getting the "number of shares outstanding" from a different source.

I appreciate the help in advance,

~ Im2bz2p Smilie

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#2
These announcements are rather broad and are always rounded for the total price. They may only be paying $40 per share, but the total $ amount could include other things.

In this case, you may need to take into account treasury shares (shares repurchased or owned by MMI). Google would proably also need to purchase those shares. Outstanding shares are those held by investors and not the company itself. So the total of treasury + outstanding shares give total issued shares.
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#3
In general you need to take into account:

in-the-money options (i.e. options where the exercise price < per share merger consideration)
restricted stock grants to executives
change of control payments
transaction fees (government, lawyers, accountants, i-bankers, etc.)
holdbacks / escrowed money

Just to name a few. If you are interested in seeing specifics for this transaction, visit http://www.sec.gov and search for filings of MMI and GOOG. All of this has to be publicly disclosed.

Quote from im2bz2p View Post :
Hello all,

Does anyone know how to calculate a stock's close price if they are acquired by another company? This question is best illustrated by an example:

Google (GOOG) had announced on Nov. 17 to buy Motorola Mobility Holdings (MMI) for $12.5 billion cash.

It was mentioned that the price per share was $40, but I don't understand how they calculated this.

I thought the calculation would be $12,500,000,000/299,040,000 (number of shares outstanding: http://finance.yahoo.com/q/ks?s=M...Statistics) = $41.80

Can anyone explain? Sometimes in the buyout news articles that I read, they only list the buyout amount (in this case $12.5 billion) and not the price per share, so I was curious how to calculate this. Maybe they are getting the "number of shares outstanding" from a different source.

I appreciate the help in advance,

~ Im2bz2p Smilie
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Joined Feb 2007
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#4
Thanks for the reply guys!

There seems to many components these "per share" values. I agree with jonny, that the annoucement are very broad.

For example, they stated the buyout to be 12.5 billion, but in actuality if you read the SEC documents.. it's stated at $12,539,173,804

Anyway, I guess it's easier to just google price per share for an acquired stock than trying to calculate it all yourself via SEC documents. lol.

~ Im2bz2p Smilie
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#5
Of course it is, but there are a few things you have to remember. Let's use your original numbers for this thought exercise: Buy price: $41.80, Current price $40. It looks like you should be able to mortgage your house, buy 10,000 shares and make an easy $18k, cha-ching! If it was this easy, somebody with a far lower cost of capital would already be buying it. There are a few things priced in here: Transaction costs (you'll pay some amount of money to buy and sell), time value of money (how long will it take from the time you or I buy the stock until Google sends us our big fat check)...and the real risk which is that the deal falls through for one of a million reasons.

I would guess that if Google's deal for MMI falls through, you could see MMI lose $5/share overnight, causing you to lose your shirt.
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