Collar
Investment Banking glossary · M&A & LBO Modeling Dynamics
Definition
Mechanism in a stock-for-stock deal that limits how much the deal value can move between announcement and closing as the acquirer's share price fluctuates. Fixed Exchange Ratio: target receives a fixed number of acquirer shares per target share — target's value moves 1-for-1 with the acquirer stock. Fixed Value with Collar: exchange ratio floats within a range to hold dollar consideration constant within a band; below the floor the ratio caps (value drops) and above the ceiling the ratio floors (value rises). Protects the target against moderate declines in the acquirer's stock while protecting the acquirer from issuing too many shares.
Collar in plain English
When one company buys another by paying in its own stock instead of cash, there's a problem: stock prices bounce around every day, so between the handshake and the final signing, the deal could quietly become worth a lot more or less. A collar is a built-in seatbelt that keeps the value from swinging too wildly. In the simplest setup the seller just gets a fixed number of the buyer's shares, so their payout rises and falls exactly with the buyer's stock price. A collar improves on that by letting the number of shares flex within a range so the dollar value stays roughly steady — but only up to a point: if the buyer's stock crashes past a floor, the protection stops and the seller's payout starts dropping; if it soars past a ceiling, the seller stops getting extra so the buyer isn't forced to hand over a wildly large chunk of the company.
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