This relates to Floating Exchange Ratio.
"The number of shares to be exchanged is typically based on an average of the acquirer's share price for a specified time period prior to transaction close. This structure presents target shareholders with greater certainty in terms of value received as the acquirer assume the full risk of a decline in its share price (assuming no structural protections for the acquirer). In general, a floating exchange ratio is used when the acquirer is significantly larger than the target. it is justified in these cases on the basis that while a significant decline in the target's business does not materially impact the value of the acquirer, the reciprocal is not true."
"...the reciprocal is not true." what does this mean.
Thanks.
it means that you could interpret "t is justified in these cases on the basis that while a significant decline in the target's business does not materially impact the value of the acquirer, " as:
t is justified in these cases on the basis that while a significant INCREASE in the target's business DOES materially impact the value of the acquirer, which is not the case here.
e.g. all tribbles are troubles and some troubles are trabbles are all trabbles tribbles?
The reciprocal is not true just means that it doesn't work the other way around.
As in, if the acquirer's business declines, it will have a material impact on the value of the target. Think about it, one company is a lot bigger than the other, it's common sense. Substitute 3M for acquirer and "tiny tape making company" for target and it'll make sense...
(1) so is it correct to say: with a larger acquirer, if the target declines, it will have a smaller impact on the acquirer's value. with a smaller acquirer, it the target declines, it will have a relatively larger impact on the acquirer's value.
(2) so is it correct to confirm that this paragraph is just trying to illustrate that the larger company can opt to do this (ie adopt the risk of Acquirer share price decline) because of the relatively lower risk? that's all?
the word reciprocal is referring to switching 'small for big' and not 'decline and incline' in target value then? sorry if this is elementary to you, just that it looks like there are 2 logical 'switches' that "reciprocal" can be applied upon, and I didn't want to pick the wrong one.
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