Arbs Want to Appraise Endeavor

Here’s how a merger works. Some public company is trading at $20 per share. Another company wants to buy it. The buyer goes to the target company’s board of directors and offers to pay, say, $28 per share in cash for all of the target’s shares. The target’s board thinks about it and decides that this is pretty good: $28 is a good result for shareholders, and a 40% premium to the price today. So the board says yes, and the buyer and the target sign a merger agreement.

Then the target’s shareholders get to vote on the deal. This is ordinarily just a majority vote1: If 51% of the shares vote in favor of the deal and 49% vote against, the deal passes. And a merger is binding on all of the shareholders. If you think that the company is actually worth $40 per share and you don’t want to sell at $28, you can vote against the deal, but if a majority of the shares vote in favor then the merger will close and everyone’s shares — including yours — will automatically be sold to the buyer for $28.