Types of buyouts
1. Cash buyout. In this case, a company you own stock in is bought out for straight cash. The acquiring company will offer the shareholders cash in exchange for their shares, usually in excess of the current value of those shares. If the deal is approved, a deposit of cash will appear in your account and the shares of the company will disappear. An example of such a deal was Vivendi Universal's recent all-cash, $2.2 billion purchase of Houghton Mifflin.
2. Cash and stock. This is the most likely offer you'll be given. Here, the acquiring company will come up with a concoction of both its own stock and cash. Typically, you'll receive stock in the acquiring company at some pre-set ratio to how many shares of the acquired company you own. In these cases, in your brokerage account you'll see a cash deposit and a raft of shares of the acquiring company. A recent example of this was Cantel Medical's $56.7 million buyout of another medical device maker, Minntech.
3. Stock only. When this happens, you get shares of the buying company, period. After the deal goes through, shares of the acquiring company will show up in your account at the pre-arranged ratio. When this happens, you need to be sure to completely analyze the acquiring company just as if you were making a brand-new investment decision. Telecom firm Genuity's $86.6 million all-stock buyout of Integra is a recent example of this type of transaction.
