Page 361 - מיזוגים ורכישות - פרופ' אהוד קמר תשפב

value of the consideration that is provided by a fixed cash component. For example, if
the seller wants a walk-away right if the total merger consideration declines in value by
more than 20 percent, it may be appropriate to take into consideration the fact that in a
half stock, half cash deal, a 15 percent decline in the acquiror’s share price would only
cause a 7.5 percent decline in the value of the total package of consideration. An example
is the Anthem/Trigon merger in 2002 in which shareholders received a package of both
cash and stock without an election. In that deal, the 22 percent absolute price decline
trigger actually represented, when the per share cash consideration is taken into account,
an overall approximate 15 percent drop in value. Another example is the 2006 merger
between Republic and Citizens in which shareholders elected between cash or stock
consideration and the consideration was primarily made up of stock. The walk-away
contained both a price-drop trigger based on the performance of Citizens stock against a
peer company index and an aggregate consideration price-drop trigger, which both had
to be satisfied to create a termination right.

Distributing the Consideration to Seller’s Shareholders -Pro Ration versus Cash
Election Mechanisms: Once the aggregate pools of cash and stock consideration are
defined, another problem must be solved: determining the best means of allocating that
consideration among the target’s shareholders.

The simplest approach is to give each shareholder a pro rata piece of the total
consideration without the opportunity to elect the preferred form, which is typically the
approach taken in transactions that include only a relatively small stock component and
are not structured as tax-free reorganizations (e.g., Georgia-Pacific’s acquisition of Fort
James) and in transactions that include only a relatively small cash component (e.g., Bank
of America/MBNA and Washington Mutual/Providian). The "no election" structure may
also be appropriate even in transactions with more substantial cash or stock components,
such as in Anthem’s 2002 acquisition of Trigon, where cash was approximately 30 percent
of the deal value at announcement.

However, in many tax-free reorganizations, where by definition there is at least a
40 percent stock component, the seller wishes to provide (usually through an election
mechanism) tax-sensitive shareholders with a low relative tax basis in their shares some
priority opportunity to exchange such shares on a tax-free basis. Structures where
shareholders can elect between cash and stock are generally referred to as "cash
election" mergers.

In a cash election merger, shareholders may elect to receive either all-cash or all-
stock (or sometimes a combination of cash and stock as well) for their target shares,
typically with a cap on the aggregate number of shares that will be converted into either
form of consideration. If one form of consideration is over-subscribed, such excess
subscriptions are forced to receive a portion of the under-subscribed form of

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