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Handbook of Corporate Equity Derivatives and Equity Capital Markets by Juan Ramirez

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6

Disposal of Strategic Stakes

The sale of a strategic stake is not a straightforward matter. Typically the number of shares to be sold represents a large multiple of the stock's average daily volume. Therefore, an immediate and direct sale of the stake onto the market by the investor can have a large negative impact on the stock price, reducing the disposal proceeds. This chapter examines the most common selling strategies.

There is no such thing as the perfect disposal strategy. Each strategy has its strengths and weaknesses. What was the optimal strategy can only be determined “a posteriori”, i.e., once it is possible to see the actual stock price behavior during the relevant period. However, “a priori” it makes sense to determine the objectives of the disposal and then try to design a strategy that could meet these objectives.

6.1 MOST COMMON DISPOSAL STRATEGIES

There are many disposal strategies. In general, the various disposal strategies can be grouped into the following three categories (see Figure 6.1):

  • Deterministic disposal strategies. In these transactions, the number of shares to be sold and the selling price are known at the strategy's inception. These strategies include immediate disposal strategies such as accelerated book-building placements and secondary public offerings, and deferred disposal strategies such as the issuance of mandatory exchangeables.
  • Enhanced disposal strategies. By implementing these transactions, investors try to sell the stake either at ...

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