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Ignorant Question
Old 03-12-2011, 08:43 AM   #1
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Ignorant Question

Need help with understanding company buyout. When company is bought for an amount. How are the long/short term debt, payables and receivables factored into the actual amount an part owner receives?

For explanation purposes, let's say offer is $10 million, long term debt is $1.5 million, short term debt $0.5 million, payables $0.5 million and receivables $1.0 million. There are 1 million shares. what is the pre-tax price per share.

Do all these factor in, some or what. I know this should be easy to answer, just not for me.


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Old 03-12-2011, 09:03 AM   #2
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Assuming it's an all cash offer, the buyer is paying $10 million for 1 million shares, or $10 per share. The other things you mention (debt, receivables, etc) are figured into the buyer's per share offer.

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Old 03-14-2011, 11:01 PM   #3
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Originally Posted by F-One View Post
There are 1 million shares. what is the pre-tax price per share.
In an ideal world, buying one million shares for $10M is $10/share.

In the business world that works if all the shares are common shares. But some of those shares may be a different class than the other shares, with different preferences for liquidation.

One example would be the requirement that owners of preferred shares get back the money that they originally paid for their shares before anyone else gets anything, and then the preferred shareholders get an equal share (alongside the other classes of shareholders) of whatever's left.

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Old 03-15-2011, 04:27 AM   #4
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Agree with other posts if offer is $10m and 1m shares, then $10/share.

Further to your question though, when an acquirer values a business the valuation is commonly "debt-free" using projected operating cash flows but ignoring interest expense - and then the value of the debt is deducted from the debt-free value. So in terms of your OP, it might well be that the buyer valued the business at $12m based on its operating cash flows and then reduced it to $10m to reflect the $2m of debt.

In private transactions, there commonly are purchase price adjustments where the $10m offer might be adjusted up or down based on the level of debt or working capital at closing.
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