Strategic Equity Derivatives in Mergers and Acquisitions

This chapter examines examples of entities that have used equity derivatives in an M&A situation. In some circumstances the use of equity derivatives has greatly impacted corporate control contests. In this chapter I have tried to analyze the most common uses of equity derivatives in M&A situations by covering real cases. As we will see, in M&A there is no such thing as the perfect strategic equity derivatives solution for a specific situation. The interpretation of securities laws for a specific equity derivatives transaction is quite subjective. Regulators often have differing interpretations regarding the same transaction. To make it more challenging, securities regulations change over time and differ from country to country. However, I think it is useful to learn from past experiences to devise more robust M&A strategies.

Numerous are the motivations behind the use of equity derivatives in M&A situations. A common thread would be an insurgent shareholder and/or a potential bidder accumulating a block of stock to gain shareholder approval for his/her proposals. The temptation to buy a pre-offer block is very strong because it may help the insurgent shareholder and/or potential bidder to lock in attractive share acquisition prices, to increase voting rights, to avoid disclosure requirements and/or to avoid public offer requirements. There are other motivations for using equity derivatives, more unusual – for example, ...

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