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Takeovers: What They Can Mean for Your Shares

Written by Rita Silvan | Published on August 1, 2017

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American fashion manufacturer Michael Kors Ltd. has been indulging in some retail therapy of its own.

Most recently, Michael Kors agreed to buy Italian luxury fashion house Gianni Versace for more than US$2 billion. The latest takeover comes, ahem, on the heels of its purchase last year of British luxury footwear company Jimmy Choo for about US$1.2 billion. Both moves are aimed at growing its operations and diversifying its luxury product offerings as retailers face challenges from increased competition in the online space and fickle consumers.

These, of course, are just two of many notable takeovers both in and outside the retail world in recent years. In Canada alone, mergers and acquisitions (M&A) activity reached C$93 billion in the first half of this year, according to a report from PwC Canada. That's largely thanks to a rise in deals in the cannabis, energy, and real estate sectors, PwC said.

The big deals obviously grab many of the headlines, but takeovers of any size can leave shareholders wondering what happens next, especially when it comes to their shares. Here are three common questions you might be asking if you own shares in a company being acquired:

1. What happens to my shares?

The first thing you may notice is a change in price. Shares in the takeover target tend to rise to around the value of the offer that's been made. If there's doubt about whether a deal will actually happen, the price may remain below the offer. (If a deal doesn't go through, which can happen for a variety of reasons, shares may drop in price.) Conversely, if there's a possibility of a competing bid, the price might rise above the offer.

No bargain hunter itself, Michael Kors offered a big premium for Jimmy Choo's shares, which sent the company's stock price up about 17 per cent after the offer was announced. The stock, which trades on the London Exchange, remained near the offer price of 230 pence per share in the first few days following the bid. (One note here: this particular deal is what's considered friendly, meaning management of the company being acquired is in favour of it. In what's known as a hostile deal, the acquirer goes directly to shareholders when management is against the deal.)

What you get in exchange for your shares depends on the specific terms of the offer, which can take many forms. For example, a bidder may be offering an all-cash amount for each of your shares, shares in the bidder's company (a stock swap), or a combination of cash and shares. In the case of Amazon's nearly US$14 billion takeover of Whole Foods last year, also friendly, Whole Foods shareholders were offered US$42 cash for each share they held.

Shares in the target company will continue to trade publicly until the deal formally closes. Securities regulators mandate how long offers must remain open.

2. What are my options?

Once all approvals have been cleared, you have a few options to consider, such as:

  • Nothing. You could hold onto your shares until the deal closes and the conversion would automatically be reflected in your account.
  • Shares may continue to trade on the market, so like any stock in your portfolio, you can decide what you want to do. Companies distribute specific information about offers, so reading through the details can help you figure out your options.

3. What next?

Information is distributed by companies involved in takeover deals to let shareholders know about key deadlines and important dates - such as special shareholders' meetings or instructions on how to tender shares. Company press releases, distributed through newswire services and posted on company websites, also contain relevant information such as specific bid details, deadlines and management views.

More Resources

As a shareholder, you often want to be armed with as much information as possible when it comes to decision making. Here is one place to check in:

  • Markets Overview, found under the Research tab, can help you keep on top of the latest news and events

This article has been updated on October 1, 2018.

RBC Direct Investing Inc. and Royal Bank of Canada are separate corporate entities which are affiliated. RBC Direct Investing Inc. is a wholly owned subsidiary of Royal Bank of Canada and is a Member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund. Royal Bank of Canada and certain of its issuers are related to RBC Direct Investing Inc. RBC Direct Investing Inc. does not provide investment advice or recommendations regarding the purchase or sale of any securities. Investors are responsible for their own investment decisions. RBC Direct Investing is a business name used by RBC Direct Investing Inc. ® / ™ Trademark(s) of Royal Bank of Canada. RBC and Royal Bank are registered trademarks of Royal Bank of Canada. Used under licence. © Royal Bank of Canada 2018. All rights reserved.

The views and opinions expressed in this publication are for your general interest and do not necessarily reflect the views and opinions of RBC Direct Investing. Furthermore, the products, services and securities referred to in this publication are only available in Canada and other jurisdictions where they may be legally offered for sale. If you are not currently resident of Canada, you should not access the information available on the RBC Direct Investing website.

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