Ask Colin

A major shareholder announced in the paper that he wants to take over the company, he made a bid of $1.76. Fundamentally the share is worth much more than what they offer....the share was in a trading range of around 1.65 it obviously shot up by him putting in a take over bid.... What is generally the trend of a share when this type of event happen.... Also what about the last 10% shareholders if the take over is up to say 90%..of the issued shares?

The answer is that almost anything can happen. It is quite complex. In fact what happens may tell you more that the other way around. Say, the offer is one where the major shareholder already has control. Unless there is a really aggressive alternative bidder, the share price will rise to close to the offer price and stay there till the offer is over. The difference between the market price and the offer price will reflect brokerage and holding costs.

Say, there is the possibility of another bid. The price will rise to more than the offer price.

The same will happen if the market thinks the management can get the bidder to raise his price.

And so it goes on.

Unless you are certain that control has passed and there is no possibility of a higher price, it will generally pay to wait till the directors make a recommendation. Even so, it may be conditional.

If a bidder passes 90% (of the issued shares, not the number of shareholders), he can compulsorily acquire the remaining shares after getting the necessary approval. It can be more complex that I have described in certain situations, so you should seek advice from your broker, licensed adviser or lawyer on the specific situation. I am not qualified to give you advice on a specific situation.

Also be aware that takeover offers can be made unconditional without getting to 90%. If you do not act before the closing date, you could be locked in as a minority shareholder. The directors will give you their recommendation and you should seek advice from your broker and licensed adviser, who will be able to give you an assessment of the specific situation. However, you also have the responsibility to read and understand the takeover documents that are sent to you. If you do not understand them, discuss them with the company and or the offeror as well as checking with your broker or licensed adviser.