A merger is a process of corporate reconstruction in which the assets and liabilities of a company are merged to form either a new entity or an already existing company. As a result, the existing legal structure is dissolved. The method of corporate restructuring is adopted by any company for various reasons inter alia to achieve economic growth, to gain competitive edge or to manage the competition already present in the market, to achieve economies of scale, to get access to newer markets and technologies, etc.

Nominee shareholder

Every holder of securities of a company may, at any time, nominate, any person to whom his securities shall vest in the event of his death. A nominee shareholder means a person whose name is entered in the register of members, who hold shares in behalf of actual owner of shares; and he has to make declaration and can be a natural person or a legal person.

Stock-swap merger

When a company merges, there are three scenarios of how the share price of the companies involved is managed during mergers and acquisitions namely, stock for stock, cash for stock and cash and stock. A merger is generally a stock swap merger, wherein one entity, in exchange of shares of the company, merges with the other entity.   In stock swaps the holders of the target company’s stock receive shares of the acquiring company’s stock. A merger arbitrage specialist will sell the acquiring company’s stock and will purchase a long position in the target company, using the same ratio as that of the proposed transaction. The Shareholders of the company whose identity have been merged are then issued shares in the capital of the new merged company in accordance with Share Exchange Ratio.

Impact of merger on shareholder

Nominee shareholders are not treated any differently to the other shareholders during a merger. A merger affects all the three bodies of the company i.e.- employees, board of directors and shareholders. During the process of amalgamation, 90% of the shareholders of the equity shares of the transferor company become equity shareholders of the transferee company by virtue of the amalgamation. Public companies often merge with the declared goal of increasing shareholder value, by gaining market share or from entering new business segments. The shareholder’s value might increase post-merger because in the scheme of arrangement the company could agree on allotting more shares to the existing shareholders, like 3 shares in the resulting company as opposed to the 1 share held in the merged company. This could encourage and motivate the existing shareholders to stay in the company and not make an exit in the event of a merger.

When a merger is announced, it affects the share prices of the concerned parties, depending on the deal as well as market perceptions of the transaction’s value. If the merger is to be accomplished with an exchange of shares, the exchange ratio determines whether one of the companies is receiving a premium above its share price before the announcement in the deal. Shares of that company may rise, though that rise may be limited if the share price of its merger partner drops, eroding the initial premium.

To limit the risk of such erosion the terms of some mergers may include a collar agreement increasing the exchange ratio if a stock to be exchanged falls below a certain level. Such collars limit the downside for one company’s shareholders at the expense of its merger partner and that company’s shareholders but are less common in mergers of equals or near equals.

Conclusion

When a company declares its intention to acquire another company, typically the stock price of the target company tends to increase, nearing the proposed takeover value. Conversely, the acquiring company’s stock price might decrease slightly to factor in the expenses of the acquisition. In cases where the market perceives that the merger will result in combined benefits for both the acquiring and target companies, the stock prices of both companies could rise. Conversely, if the market believes that the deal is a mistake, the stock prices of both companies might even decline.

How we can help?

1. Our team provides services for the purpose of holding in trusts, assets, usually shares, stocks and bonds as nominees and custodians.
2. Our professionals assist in registering trusts for the shares in our client’s business in the name of nominee shareholders so that the identity of the client is only known to us and is not visible as the owner of the shares in the public records.
3. Our team of professionals provide a comprehensive service wherein the underlying beneficial owners/investors have the beneficial interest in the shares that is, they are entitled to all income and related capital gains.