Cash Offers and Share Offers Work Differently
Northstar can pay €50 cash per Harbor share, or it can offer 0.5 Northstar shares for each Harbor share. These behave very differently.
Why this matters for beginners
Cash offers fix the amount; share offers fix the ratio. This is general education, not personal advice.
Main explanation
Cash offer: if the deal completes, €50 per share is paid in cash. The amount is fixed.
Share offer: each Harbor share becomes 0.5 Northstar shares. With Northstar at €80, the implied value is 0.5 × €80 = €40.
If Northstar rises to €90, the implied value is €45. If it falls to €70, the implied value is €35.
So in a share deal, the target often moves together with the acquirer's share price, because its payoff depends on it.
Example using a real company
0.5 Northstar shares per Harbor share: €45 at €90, €40 at €80, €35 at €70.
- →Cash: fixed €50.
- →Shares: 0.5 × acquirer price.
Common beginner mistakes
- ✕Treating a share offer's headline value as fixed.
- ✕Ignoring the acquirer's share price when valuing the target.
Key terms
- Exchange ratio
- How many acquirer shares each target share receives.
- Implied value
- Exchange ratio times the acquirer's share price.
Key takeaways
- 01Cash offers fix the amount; share offers fix the ratio.
- 02Implied value = exchange ratio × acquirer price.
- 03In share deals the target tracks the acquirer.
Check yourself
- 01Exchange ratio 0.5, Northstar at €80. Implied value?
- 02Northstar falls to €70. New implied value?
- 03Which offer type has a fixed euro amount?
- 04Why might Harbor fall when Northstar falls in a share deal?
Try the concept on a real company
Open a company in the Analyzer and ask which of these mechanics could explain its recent price moves.
Educational examples only. Not buy or sell recommendations.