Hi everyone,
I was wondering if it is possible to have a company to be acquired at a negative premium in a country like China where the trading comps are sky high. I was looking at CapIQ and the precedent transaction seem to suggest the negative premium.
In such a scenario, is it possible to determine a fair value based on the median negative premium of the past transactions as well?
Thanks and will give SB+ for answers.
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One possible reason for a negative premium is M&A speculation. For example, if the market hears through the grapevine that a company will get acquired, and the stock shoots up 25% (either because a 25% premium was rumored or the market took their best guess), and then the deal gets announced at a 20% premium, there would be a "negative premium" vs the current stock price.
In cases like this, we would normally look at metrics like offer price vs stock price 1 week before announcement, 1 month before announcement, a VWAP price, or if you can pinpoint when the info got leaked, the "unaffected stock price".
That said, China equities are a different beast, and not my forte, so its possible that some M&A gets done at discounts to current trading values for different reasons, which I'll let others weigh in on.
Hope this helps.
Thanks for the info. The precedent transactions I had were all negative for 1 day, 1 week and 1 month e.g. companies trading at 80x EBITDA are selling for 40x and the only difference is how much is the negative premium. Anyway, SB+ as well.
China market has so much insider trading going on it's very likely the reason for negative premium is M&A speculation nontargetPSD92 mentioned. That said, some M&A deals have non-equity considerations (e.g.. convertible bonds) and that could be a reason for negative premium as well.
typically for precedent transaction analysis, we tend to weed out China deals are they skew the median too far off. This is only applicable to non-China deals though. Do look at "cleaning up" the precedent transactions, which means looking at the historical prices and trading volume to determine any major changes to the prices which aren't substantiated with public information/announcement to determine the clean price to calculate your VWAP.
Looking back to the financial crisis - it can and will happen in bankruptcy scenarios.
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