One of the most thrilling moments is when a company you hold shares in announces a stock acquisition. Bowser subscribers received this news when AdTheorent (ADTH), September 2022’s Company of the Month, and Cadent issued a press release on April 1, 2024.

Stock acquisitions: ADTH

AdTheorent (ADTH) has announced a stock acquisition.

Stock acquisitions often set off a flurry of excitement and speculation. However, it's also a time when investors need to understand what this means for their investment. Let's delve into what holding shares of a stock being acquired entails.

Understanding Stock Acquisitions

When a company announces a stock acquisition, it typically means that another company is purchasing it. The terms of the deal can vary widely, including the price, whether it's an all-cash deal or a stock-for-stock exchange and any conditions or regulatory approvals required.

The details announced in the case of ADTH involve Cadent intending to purchase the company for $324 million (or $3.21 per share). The deal includes a 33-day “go shop” period that allows AdTheorent to solicit alternative proposals. And, as is customary, the deal is subject to approvals.

Implications for Shareholders

The implications for shareholders can vary based on the terms of the deal:

  • All-cash deal: shareholders will typically receive a cash payment per share owned
  • Stock-for-stock deal: shareholders may receive shares of the acquiring company in exchange for their current holdings

In either case, the terms of the deal will determine the value of the shares you hold.

Of consideration as well is whether there are any outstanding warrants and if the deal includes any specific consideration for them.

The deal between ADTH and Cadent is an all-cash deal, meaning ADTH shareholders will receive a cash payment for each share. ADTH does have outstanding warrants (ADTHW), but the acquisition announcement does not mention them specifically. As this is an all-cash deal, the assumption is the warrants will expire when the acquisition takes effect.

Potential Outcomes of a Stock Acquisition

While stock acquisitions can often lead to a surge in the stock price of the stock being acquired, there are risks involved. Deals can fall through due to regulatory issues, financing problems or other unforeseen circumstances. In such cases, the stock price may plummet back to pre-acquisition levels, or even lower. Additionally, even if the deal goes through, the acquiring company's stock price may react negatively, affecting the overall value of your investment.

Plus, brokerages may charge administrative fees for processing the acquisition. It's best to consult with your brokerage for these terms.

Key Considerations for Investors

  1. Deal Approval: Monitor the progress of the acquisition deal, paying attention to regulatory approvals and any hurdles that may arise.
  2. Valuation: Assess whether the offer price accurately reflects the value of the stock being acquired.
  3. Tax Implications: Understand the tax consequences of the stock acquisition, especially if you receive cash or stock as part of the deal.
  4. Long-Term Outlook: Consider your investment goals and whether holding shares of the current stock through the acquisition and/or the acquiring company post acquisition (if a stock-to-stock deal) aligns with your investment strategy. For Bowser subscribers, we recommend consulting the Bowser Game Plan.

AdTheorent does have a “go shop” period and is subject to approvals, so monitoring the situation is wise. Plus, preparing for tax implications is also smart because the cash payment will qualify as capital gains.

In Conclusion

Holding shares of a stock that has announced an acquisition is exciting. While stock acquisitions can result in significant gains, they also come with risks and uncertainties. It's essential to stay informed, understand the deal's terms and consider your options before making any decisions.

Remember, every acquisition deal is unique, and what's right for one investor may not be suitable for another. By following the guide above, you can navigate the complexities with confidence.