Million Dollar Journey

Questrade Democratic Pricing - 1 cent per share, $4.95 min / $9.95 max

Building Wealth through Saving and Investing

Welcome to Million Dollar Journey! If you're new here, you can learn about me, read our user guide, and even follow my net worth updates. A great place to start reading is with the popular articles located in the right side bar. If you would like to join thousands of others and keep up with the free daily updates, you can subscribe to the RSS feed via reader or E-mail.

On your way out, make sure to check out the exclusive Million Dollar Journey Freebies and Deals.

Reader Mail: Should I Sell or Hold during Stock Mergers/Acquistions?

The big financial news in Canada these days is that Burger King is acquiring Tim Hortons in a cash and stock deal worth $12 billion.  When big events like this happens, I typically get a number of emails on the topic, this time around, readers are wondering what to do with their shares of Tim Hortons (THI).

Background

While there are many types of mergers and acquisitions, in this case, Burger King is a publicly traded company that is in the process of acquiring another publicly traded company.  In some cases, the acquiring company will offer straight cash  which they will finance by issuing more shares, or obtaining debt.  In other cases, the acquiring company will simply offer shares in exchange for buying out the outstanding shares of the company to be acquired.  In this situation, Burger King is offering cash plus shares to THI shareholders.  More specifically, for each share of THI, the deal is $65.50 cash and 0.8025 common shares of the new company formed.

So how does this affect existing THI shareholders?  Owners of THI shares have a choice, either to wait until the deal is completed to take $65.50 cash and 0.8025 shares of the new company per share of THI held, or sell their THI shares in the open market before the deal closes.

Holding During a Merger/Acquisition

As a shareholder of THI, lets take a look at my situation.  Say that I own 100 shares of THI, if I hold until the deal closes, I get $6,550 in cash and 80 shares of the new Burger King/Tim Hortons company.  While getting shares of the new company may potentially be great investment, it has uncertainty as Burger King doesn’t have the same brand power as Tim Hortons (at least not in Canada).

Selling Your Shares

What if I want to cash out of the deal now?  As with most acquisitions, the share price of the company to be acquired usually spikes to close to the acquisition price.  In this case, THI traded around $63 (on NYSE) the day before the merger announcement and rocketed to $82 after the acquisition details were released.  Selling my 100 shares will net me $8,200 cash, rather than getting a portion cash and another portion in shares of the new company.

What Did I Do?

I sold my shares in the market and took the cash.  If I like what I see when the new company forms, I may reconsider it then.  As well, since the shares were in my TFSA, it was an easier choice since capital gains are sheltered.  Taking the cash and stock deal would be more attractive in a taxable account as it would help defer some of of the taxable capital gains, but in this case, I likely still would have made the same choice.

What do you typically do when a publicly traded company that you own becomes acquired?

3 Comments


Working after Retirement, Minimalist Principles, Amazon Student Prime, and more!

In his ‘best of’ series for the summer, The Blunt Bean Counter discusses about the One Big Happy Family – Until We Discuss the Will.

It is likely that at least a few retired people will want or need to return to the workforce at some point; Canadian Finance Blog writes about How to Go Back to Work if You’re Already Retired.

Canadian Couch Potato demonstrates the significance of knowing your investment risk tolerance through Do You Really Know Your Risk Tolerance?.

Sustainable Personal Finance offers multiple reasons for Why You Should Consider Adopting Minimalist Principles.

Clutter is probably a concern in many homes. Michael James on Money touches the topic through his post on Stuff Tax.

Practice makes perfect is an adage; Boomer and Echo shows How Automation And Habit Combine To Produce Amazing Results.

The Retire Happy blog highlights why Teaching kids to save with a piggy bank is bound to stand them in good stead.

Maybe, you have wondered whether an Amazon membership is useful; Young and Thrifty arrives with timely help for students by asking: Amazon Student Prime – Is It Worth It?.

Canadian Dream took a pay cut but found that the take-home pay only diminished nominally: 10% Less Pay, But $8 Less on My Paycheque.

2 Comments


Page 1 of 73212345...102030...Last »

Get the Latest

      

Money Tips Newsletter

Premium Sponsors



Recent Comments

  • Jay: It’s so tough to tell. I’m generally a buy and hold guy so I enjoy the merger pop and then let it...
  • SST: re: “Burger King is a publicly traded company that is in the process of acquiring another publicly traded...
  • Stephen @ HowToSaveMoney.ca: Since I’m mostly in index funds, I don’t think I’ve ever held a...
  • JT: @FT, lucky you! I’ve got just over $100k left on my mortgage with the plan of converting my remaining...
  • FrugalTrader: @JT, we paid off the instalment portion of our mortgage a few years ago. The dividends are reinvestd in...
  • JT: Just to confirm; you are using the approx. $5,600 in annual dividends to pay down your existing mortgage and...
  • Ed Rempel: Hi Mark, An important question in this debate is: Is it a good idea to pay off your mortgage early? I have...
  • Ed Rempel: Hi Mark, I think you are missing the mark. (Pardon the pun.) From working with thousands of people and...
  • R: “Guaranteed by the government ” is baloney. Somebody flies a jet into a skyscraper and all of the...
  • Hemgi: If you can get a RRSP return on investment over 6%, or a TSFA return on investment, then you can think of not...

Top Commentators

 css.php