Takeover bid

I don't quite understand what happens if a stock you own is under a takeover bid. For instance, SAI is supposed to be under a takeover bid by Hong Kong-based Baring Asia Private Equity for $4.75.

Aussiesteve said:

I don't quite understand what happens if a stock you own is under a takeover bid. For instance, SAI is supposed to be under a takeover bid by Hong Kong-based Baring Asia Private Equity for $4.75.

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At the time of the takeover bid, the following usually happens:

1) Company announces the bid to the market, with an estimated timeline. They will usually announce a per share.
2) Market participants usually buy the stock up to the level of the bid, give or take a few percentage points (if the bid is viewed as risky in any way, there might be a larger discount)
3) The company's board will give a recommendation
4) The company will arrange a meeting with shareholders to vote on the proposal

If it's approved:
1) The market is notified that it's approved, with the required effective date
2) Wait for conditions to be met, if required
3) On the date that it becomes effective, money is transfered from the buyer and distributed to each of the shareholders. This is done using the same mechanism (share registry) and money is transfered into each shareholders account electronically (or they're sent a cheque) for each of the shares they owned.

Probably some details I've missed, but that's pretty much it.

Hi Klogg,
you pretty much summed up the usual scenario.
Leaving just a couple of special cases:

Some other group makes a counter offer. The new offer is usually higher, sometimes only claimed to be higher, but consisting of a mix of cash and new shares, so it's difficult to verify. The Directors that may have supported the first offer always leave an exit door ajar with the clause "in the absence of a superior offer".

This can lead to either a bidding war, or one party withdraws the offer.

An offer may also be withdrawn unilaterally. This will likely involve some failure of conditions precedent, leading to claims and counter claims. If the legal fraternity gets involved, things start to become messy indeed, and the poor shareholder who bought the initial spec will foot the bill.