Mergers and acquisitions happen all the time on Wall Street, and usually, they're not a bad deal for shareholders in the target companies. After all, executives and boards of directors aren't likely to sell their businesses unless they get a premium for it. But how does it all actually play out for retail investors?
In this segment from Motley Fool Answers, host Alison Southwick is joined by senior analyst Jason Moser and Motley Fool Wealth Management's Ross Anderson to explain to a listener who owns some shares of Mazor Robotics (NASDAQ: MZOR), which was recently purchased by Medtronic (NYSE: MDT), what will happen next.
A full transcript follows the video.
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This video was recorded on Nov. 27, 2018.
Alison Southwick: The next question comes from Vin. "Can anyone at TMF explain what happens when a company you own sells to another company, as in what happens to the stock? I own Mazor Robotics, which recently sold to Medtronic. Do my Mazor shares automatically convert to Medtronic or automatically cash out once the sale is complete? Do I have to do anything like sign an agreement for my shares or sell the shares to Medtronic? Or do nothing and it magically takes care of itself in the mysterious trading world?"
Jason Moser: The short answer is yes.
Southwick: Oh, great!
Moser: Yes. It's an interesting situation because there are a lot of different ways this can be resolved for you. We'll use Mazor Robotics as the example because that was the example that was given, but there was a recent deal where Medtronic has agreed to acquire Mazor Robotics and this is an all-cash deal. So Medtronic is going to pay all cash for this. The deal has already been approved and it is expected to close during Medtronic's third quarter ending January 25th, 2019. They're sort of tying a bow on everything and making sure the regulatory environment will allow for this acquisition to happen and it all looks like it will.
When we look at that all together, the deal is Medtronic is going to pay $58.50 per share in cash for Mazor Robotics. This means if you own shares of Mazor Robotics, Medtronic is going to give you $58.50 per share in cash. And you can see that Mazor Robotics today is trading pretty close to that price. That indicates that the market thinks this deal is likely to go through.
Now, you can sit there and wait to see if maybe there's a better offer. Perhaps another company might come in and say, "You know what? We like Medtronic's offer, but we're going to raise it. We're going to pay $65 a share for Mazor Robotics." That's always a possibility.
Now, the market is telling us probably not going to happen, and I think in Mazor's case, they'd like to be a part of the Medtronic family, anyway; so, it is a little bit of a gamble, there, if you decide to go ahead and sell your shares and move on. Oftentimes when you see the market giving us signs the way it's giving us signs today, that they feel like this deal is going to go through, and that means you can sell your shares of Mazor and go ahead and be done with it. You can move on and reinvest that money somewhere else. Otherwise, if you decide to just wait it out, then you will have to wait for the deal to close, which it sounds like it will be by the end of January 2019.
I will say one caveat you need to be careful of is some brokerages will sneak this by you and you won't even see it. If you let this go through, and you just let them do all the work for you...
Southwick: Some mysterious magic...
Moser: ... there will sometimes be this ghost fee that comes into play, here. As opposed to just selling and taking that $7.00 or $5.95 commission that your brokerage will normally charge you, sometimes they'll tack on like a $25 closing fee, or whatever it may be. While it's not debilitating, it's kind of insulting and a little bit frustrating, and I'd like to avoid it at all costs.
You can sit there and do the math and try to figure out which way works better for you. Typically my train of thought is that when I see a deal like this and it looks like it's getting ready to go through, I just end the relationships, sell the shares, and move on. Of course, everybody has their own choice, but hopefully I've given you some information there to make the decision that's best for you.
Alison Southwick has no position in any of the stocks mentioned. Jason Moser has no position in any of the stocks mentioned. Ross Anderson has no position in any of the stocks mentioned. Ross Anderson is an employee of Motley Fool Wealth Management, a separate, sister company of The Motley Fool, LLC. The information provided is intended to be educational only, and should not be construed as individualized advice. The Motley Fool owns shares of Medtronic. The Motley Fool recommends Mazor Robotics. The Motley Fool has a disclosure policy.