Mergers and acquisitions are types of corporate actions. We use both of these terms to describe two companies transacting with each other to achieve an end goal, but they mean very different things.
What is a merger?
A merger occurs when two separate companies join together to form one new company. This new company usually adopts a new company name. The two original companies no longer exist after the merger is complete.
Merger transactions usually do not require cash to take place.
How does a merger affect shareholders?
When a merger occurs, an exchange of shares between both companies takes place based on an exchange ratio.
For example, for every 1 share of company A that you hold, you will receive 2 shares of company B. This exchange in shares may increase or decrease your share price depending on if investors think the merger is favorable.
Regardless of the exchange ratio, shareholders of both companies will now have a stake in the new company.
What is an acquisition?
An acquisition occurs when one company (the acquiring company) takes over another company (the target company) by purchasing most or all of that company’s shares.
This transaction is sometimes called a takeover and requires cash.
How acquisitions affect shareholders
When an acquisition occurs, the share price of the target company may rise, and the share price of the acquiring company may drop. Prices will move depending on if investors find the deal to be favorable.
How does Wealthsimple process mergers and acquisitions?
Our back-office processes all mandatory corporate actions on your shareholdings, so no action is ever required on your end.
- Normally, it can take between 1-6 business days for the corporate action to reflect in your Wealthsimple account.
- Your shares will remain inactive in your portfolio until the merger is complete. This means you will not be able to sell your shares during the inactive period.
- You should see a breakdown of your shares in the following month’s monthly statement.
If you’re looking for more clarification on how a corporate action has impacted your shares, you can always reach out to our support team for more information, or the Investors Relations website of that company.
Mergers and acquisitions do not have any tax implications for existing shareholders of the target company and the acquiring company.