M&A Takeover Premiums Unrealistic

[jdraymond]

As an Investment Banking M&A professional, the current premiums required to purchase from private individuals are absurdly high (100%+). I'd love to hear the rationale behind this as I'm sure it's not just an arbitrary number, however I really wouldn't expect premiums to be this high in the real world.

In reality, more mature markets (U.S.) would require 20-30% takeover premiums and more emerging/isolated markets 30-40% premiums. I could over explain my own rationale, but it would be pointless if there wasn't an openness to updating for this.

Appreciate your consideration!

[eleaza]

Personally I feel it's not the premium price overrated, but the other way around, the "normal" market price is way too low. And we don't actually have a fully simulated market with millions of traders, but just a couple of "persons" with a "calculated base price". Hence instead of a continuous price range, we have a very wide gap of "normal price" mixed with a few level of much higher premium prices. And the end result is if players get involved in stock market game purchasing with premium price, the "current price" will be pulled up and end up much closer to the real value of a corporation.

But I also wonder how this ratio of premium price is calculated though, I know the person's personality has sometime to do with it, but not sure how much is by default, and how much is due to their willingness to hold stock of their own. (the personal who is the CEO will have various degree of purchasing back premium, and usually have the highest premium mock up, can be up to 300%).

[jdraymond]

Sorry, I read your reply several times and I may be having a tough time following.

I suppose if the debate is based on the "real value" for the company, then it's really too subjective to conclude what should be done. I am running on the assumption that the quoted price is the market price and the premiums I was referencing was based on just that. I understand your argument though regarding a particularly high premium required by CEO's, I just wouldn't expect this from random individual investor.

While we could debate what the premium should be on the CEO's holdings, I still submit that the premium on the remaining shares should be within those ranges.

Appreciate your thoughts!

[eleaza]

Sorry, I read your reply several times and I may be having a tough time following.

I suppose if the debate is based on the "real value" for the company, then it's really too subjective to conclude what should be done. I am running on the assumption that the quoted price is the market price and the premiums I was referencing was based on just that. I understand your argument though regarding a particularly high premium required by CEO's, I just wouldn't expect this from random individual investor.

While we could debate what the premium should be on the CEO's holdings, I still submit that the premium on the remaining shares should be within those ranges.

Appreciate your thoughts!

Well, my point is those "persons" as "individual investors" are far from "random investor", they are sort of representing investors who have the ability to invest in the number of millions at ease, and even have the potential to open their own "corporation" if any AI corporation goes bankrupt, they are essentially AI component seeds have the same AI as any CEO AI. So in a way they are far from "simulating" real world situations, but more like being there to make the game more "challenging" for players, otherwise it would be super easy to takeover businesses without players doing any actual manufacturing. (you could obviously do that, just not easy to do).

And in a sense, the stock held be these "rich persons" don't actually "flow" on the open market, it's players "force" their hand to sell. More often than not, the precious and difficult to buy stocks have huge potential in the future, if you watch closely these rich persons' wealth, those hold on to the stock from the very beginning, tend to reach extremely high value after just a decade. Why would someone want to sell a potentially 3 times more worth stock in 5 years to you at current market price? That's why I said the current market price is grossly undervalue, if you watch these AI company actual assets value over time. The successful one's stock is definitely undervalue compared to their future potentials. Of course the "AI" is quite dumb to realise what risk really is, hence it will treat every stock as "high potential future growth stock" when the stock belong to a positive income corporation.

And these individual investors will sell their stocks at the right moment and open up "public share" (and players can come in to steal at a cheap price), like when the target corporation is hammering profit, or the price is ridiculously high due to the economy is booming or fluctuating out of the normal range. And normally it's better to defeat the competitor both at the product market to reduce their profit base, and at the same time to purchase their stock when the price is falling quickly. And there are suggestions in the past discussing about tender offer more than 5% at a time to make purchase and merger less "micro-management intense" when players clearly have the capital to bought out all the stocks at once (like a player-to-AI friendly merger). The current mechanism is no where near perfect or realistic, but good enough at balance gameplay difficulty as well as mimic the basic stock market behavior to a certain degree (without actually simulated millions of sellers and buyers in a capital market, it's quite impressive)