Office Overview

Understanding Ordinary Shares in M&A: A Comprehensive Guide

Unlocking the Value of Ordinary Shares in M&A Transactions

Ordinary shares, also known as common shares, play a crucial role in mergers and acquisitions (M&A) transactions. Here’s an overview of their significance:

1. Ownership Rights: Ordinary shares represent ownership in a company and typically come with voting rights. Shareholders holding ordinary shares have the right to participate in key corporate decisions, such as electing the board of directors and approving major transactions.

2. Dividend Entitlement: Holders of ordinary shares are entitled to receive dividends when the company distributes profits to its shareholders. The amount of dividends paid to ordinary shareholders is typically determined by the company’s profitability and dividend policy.

3. Risk and Return: Investing in ordinary shares involves both risks and potential rewards. Shareholders bear the risk of loss if the company performs poorly, but they also have the opportunity to benefit from capital appreciation if the company’s value increases over time.

Understanding the Role of Ordinary Shares in M&A

Ordinary shares are a fundamental component of M&A transactions, influencing various aspects of deal structures and outcomes. Here’s a deeper dive into their role:

1. Valuation Impact: In M&A transactions, the value of ordinary shares is a key determinant of the overall valuation of the target company. Acquirers often analyze the earnings, assets, and growth potential of the target company to assess the fair value of its ordinary shares.

2. Consideration Structure: Acquirers may offer a combination of cash, stock, or other securities as consideration for acquiring a target company. The use of ordinary shares as part of the consideration allows acquirers to leverage their stock as currency, providing shareholders of the target company with an opportunity to participate in the future performance of the combined entity.

3. Shareholder Approval: M&A transactions involving the issuance of new ordinary shares or significant changes in ownership structure often require approval from the shareholders of the involved companies. Shareholder votes play a crucial role in determining the success or failure of proposed transactions, reflecting their confidence in the deal’s potential benefits.

Examples of Ordinary Shares in M&A Transactions

Several notable M&A transactions highlight the importance of ordinary shares in deal structures and outcomes:

1. Microsoft’s Acquisition of LinkedIn: In 2016, Microsoft acquired LinkedIn, the professional networking platform, for approximately $26.2 billion. The deal was structured as a combination of cash and stock, with LinkedIn shareholders receiving $196 per share in cash and the remainder in Microsoft common stock. The use of Microsoft’s ordinary shares as part of the consideration allowed LinkedIn shareholders to become Microsoft shareholders and benefit from the potential synergies between the two companies.

2. Verizon’s Acquisition of Yahoo: In 2017, Verizon Communications acquired Yahoo’s core internet assets for approximately $4.48 billion. The transaction included the issuance of new Verizon shares to Yahoo shareholders as part of the consideration. While the deal faced challenges, including data breaches and regulatory scrutiny, the use of Verizon’s ordinary shares helped facilitate the transaction and provided Yahoo shareholders with an opportunity to participate in Verizon’s future growth prospects.

3. Walt Disney’s Acquisition of 21st Century Fox: In 2019, The Walt Disney Company completed its acquisition of 21st Century Fox’s entertainment assets for approximately $71.3 billion. The deal consideration included a combination of cash and Disney ordinary shares, with 21st Century Fox shareholders receiving $35.7 billion in cash and the rest in Disney stock. The use of Disney’s ordinary shares allowed 21st Century Fox shareholders to become shareholders of the combined entity, providing them with ownership stakes in Disney’s diverse portfolio of media and entertainment assets.

Ordinary shares are integral to M&A transactions, representing ownership rights, dividend entitlements, and investment opportunities for shareholders. In M&A deals, the valuation impact, consideration structure, and shareholder approval process are influenced by the role of ordinary shares. Examples such as Microsoft’s acquisition of LinkedIn, Verizon’s acquisition of Yahoo, and Disney’s acquisition of 21st Century Fox illustrate how ordinary shares are utilized in structuring and executing successful M&A transactions.