What is Assented Stock?

Assented stock is a share of stock owned by an investor who has agreed to the terms of a takeover bid. When one company wants to buy another company, they make an offer to the shareholders they wish to acquire. This offer is called a takeover bid.

How Takeover Bids Work

A takeover bid usually involves the acquiring company offering to buy the target company’s shares at a specific price, typically higher than the current market price of the shares. The hope is that enough shareholders will find the offer attractive and agree to sell their shares, allowing the takeover to happen.

When a shareholder agrees to the terms of the takeover bid and commits to selling their shares, their stock is considered “assented stock.” They have essentially given their approval for the takeover to proceed.

Why Shareholders Assent

There are a few main reasons why a shareholder might choose to assent to a takeover bid:

1. The offer price is high enough. If the acquirer offers a significant premium over the current share price, shareholders may be tempted to cash out and take the profit.
2. They believe in the merger. If shareholders think the combined company will be more vital and valuable, they may be eager to participate in that future growth.
3. They want to avoid being left out. If the takeover is likely to succeed, shareholders may assent to ensure they get the offer price. If they don’t and the takeover goes through, they’ll be minority shareholders in a company controlled by the acquirer.

The Assent Process

Once a takeover bid is made, shareholders must decide. They can accept or reject the bid terms (i.e., permission).

Shareholders usually have a deadline by which they need to make their decision. This gives them time to evaluate the offer and keeps the process moving. They indicate their assent by tendering their shares, often through their broker.

If enough shares are assented, the takeover bid will be successful. The exact percentage needed varies, but it’s usually most of the outstanding shares. Once that threshold is reached, the deal can move forward.

Impact of Assented Stock

Assented stock plays a significant role in mergers and acquisitions. It’s a critical factor in determining whether a takeover will succeed.

For the Acquiring Company

The level of assented stock is critical for the company making the takeover bid. They need to attract enough shareholders to gain control of the company.

If they don’t get enough assented shares, their takeover attempt will fail. This can be costly in terms of the resources spent on the effort and the potential impact on their share price.

For the Target Company

For the company being acquired, a high level of assented stock usually means the end of the road as an independent entity. If most shareholders approve the takeover, it isn’t easy to stop.

However, many shareholders who disapprove can complicate the process. They may try to hold out for a better offer or create other roadblocks.

For Investors

The decision to approve or not can significantly impact individual investors’ investments. Assenting usually means cashing out their position at the offer price, which can be attractive if the offer represents a good return.

However, some investors may believe the offer undervalues the company. They may choose not to approve in hopes of a better offer or to maintain their stake in the company.

Investors also need to consider the likelihood of the takeover’s success. If it seems likely to go through regardless of their decision, not assenting could mean missing out on the premium offer price.

Key Considerations

Several factors come into play with assented stock and takeover bids.

Offer Price

The price offered in the takeover bid is perhaps the most critical factor. It needs to be high enough to entice shareholders but not so high that it’s uneconomical for the acquirer.

The premium over the current share price is a crucial metric all parties watch. A higher premium makes assent more likely and raises the bar for the acquirer.

Shareholder Base

The makeup of the target company’s shareholder base can also be influential. If there are large institutional investors or insiders with significant stakes, their decisions can carry a lot of weight.

Conversely, many retail investors may follow the board’s recommendations or accept the premium offer price.

Board Recommendation

The recommendation of the target company’s board of directors is another critical factor. It can sway many shareholders to approve if they support the takeover bid.

However, if the board opposes the deal, it may work to convince shareholders not to tender their shares, which can create a more contentious process.

Regulatory Approval

The takeover bid may face regulatory hurdles even if it gets enough assented shares. Depending on the industry and size of the companies involved, the deal may require approval from competition authorities or other regulators.

If there are concerns about the impact on competition or other issues, the deal could be blocked or require modifications despite shareholder approval.