What is an undisturbed price?
What it means and how to read it on a deal.
What it is
A reference close for where the target's shares traded before the deal, taken on a day set by a fixed rule.
What it is for
The undisturbed price is a reference close for where the target's shares traded before the deal. It is also called the unaffected price.
It is a yardstick for two things: how much more the buyer pays than the market did, and where the shares might go if the deal fails.
Why the day matters
News of a deal can reach the price before the deal is signed. A press report, a leak or a public offer can lift the shares.
So the undisturbed price is taken from a day before some or all of that news. The day chosen changes the premium. For example:
Litware traded at $36.00 for months. A press report of takeover talks lifted it to $38.00. Then Woodgrove agreed to pay $50.00 a share.
- From the day before the report
- (50.00 − 36.00) ÷ 36.00 = 38.9% premium.
- From the day before the deal
- (50.00 − 38.00) ÷ 38.00 = 31.6% premium. The report's lift is already in that price.
An earlier day leaves out more of the news, but its price also reflects older market conditions. Companies choose the day in their own announcements. Tracking Alpha uses one fixed rule for every deal, set out below.
A real example
In April 2022, Twitter agreed to be bought by Elon Musk for $54.20 a share in cash.
Twitter's announcement put the premium at 38%, measured from its close on April 1, 2022. That was the last trading day before Musk disclosed his stake of about 9%.
Measuring from that day kept the news of his stake out of the yardstick. That was Twitter's own choice. Under Tracking Alpha's rule, the day would be the close before Musk's priced offer was officially disclosed, a later day.
Where it is used
- The premium
- Deal announcements and proxy statements usually state the offer's premium over one or more earlier closes or averages, naming their dates.
- The price if the deal fails
- Simple merger arbitrage maths can use it as the price the shares might fall back to. A simple estimate of the chance of closing that market prices imply depends on that choice and other assumptions.
What it means for shareholders
It is a reference, not a floor. After a deal break, the shares can settle above or below it.
They can end up higher if the market rose or another bidder appears. They can end up lower if the business or the market got worse.
On Tracking Alpha
The checklist shows the price and the day it is from, with the filing's words when a filing states that close.
Our rule for the day: the last market close before the first official disclosure of a proposal naming a price for all the shares.
That disclosure is a press release or an SEC filing, by a bidder or the target. It can come from any bidder in the process that led to this agreement.
Without one, it is the last close before the deal's announcement. A disclosure after the market closed keeps that day's close.
Later revisions don't move the day. Nor do strategic reviews, the launch of a sale, leaks or press reports, so the price can already reflect earlier ones.
The deal maths use it as a reference price if the deal breaks, not a prediction of where the shares will trade.
Easily confused with
- Offer
- The price the buyer agrees to pay. Premiums are often measured from an undisturbed price up to the offer.
Questions
What is the unaffected share price?
Another name for the undisturbed price: the target's close on a chosen day before the deal, or before some of its news. Premiums are often measured against it.
Why is the premium measured from an earlier price?
News often lifts the shares before a deal is signed. An earlier close can leave out some of that news, depending on the day chosen.
Will the shares fall back to the undisturbed price if the deal fails?
Not necessarily. They can settle above or below it, depending on the market, the business and whether another bidder appears.
Sources
Tracking AlphaBy Jera Value · Reviewed
Related terms
- Deal breakA deal that ends without closing: the agreement is terminated, for example because an approval is refused, holders vote it down or the buyer walks away.
- Market-implied chance of closingA calculation from market prices: the chance of closing at which holding to the expected close would earn what Treasury bills pay over the same time.
