Meaning
Financial metrics representing the exact amount of cash, stock, or other assets allocated to a single share of stock in an acquisition define the basis of shareholder payout. Determining the per share merger consideration requires dividing the total equity value of the transaction by the fully diluted share count. This figure dictates what each investor receives upon the cancellation of their shares.
The calculation must be highly accurate to avoid shareholder lawsuits.
Calculation Mechanics
To arrive at the final number, the transaction model must account for all outstanding options, warrants, and convertible notes. This process involves converting all dilutive securities into common share equivalents. The per share merger consideration can vary across different classes of stock if the company has preferred shares with liquidation preferences.
This creates multiple tiers of payout.
Adjustment Risk
The initial value assigned to each share is frequently subject to post-closing adjustments. Working capital adjustments and transaction expenses can alter the final payout. When these variables fluctuate, they modify the per share merger consideration received by the selling shareholders.
This uncertainty is often managed through escrow accounts.
Indemnity Holdback
Sellers rarely receive the entire amount of their equity value immediately at closing. A portion of the per share merger consideration is typically held in escrow to secure indemnity obligations for any breaches of representations. These funds are released to the shareholders after the survival period expires, provided no claims have been made.
This protection reduces the risk for the buyer.
