Yeah the second article in that link gives some go
Post# of 1481
(Total Views: 683)
Posted On: 05/09/2018 8:37:53 AM
Yeah the second article in that link gives some good clarity regarding possibilities. I'm leaning mostly towards a combo of these two:
In an acquisition. Depending on how the liquidation preference is structured, the investor might receive a larger payout by converting to common. This is where the difference between "participating" and "non-participating" liquidation preferences come into play. For example, if the liquidation preference is non-participating, then the maximum amount the preferred stock will receive in the merger is that liquidation preference. If the merger is a big deal though, the investor might take home a bigger payout if it just took home it's pro rata share of the merger proceeds like a common holder would and gave up the liquidation preference.
To gain more control over the company. This one is counter-intuitive, and does not apply in all cases. But sometimes there will be certain votes that require the consent of the common stock, voting as a separate class from the preferred. For example, the Company's certificate of incorporation or voting agreement could specify that the holders of the common stock get to elect one director to the board. If the investors are looking to make a change to that board seat, they might choose to convert some or all of their preferred stock into common if it would allow them to swing the vote and therefore replace the director. This is essentially giving up liquidation preference in exchange for some control, so is not a common occurrence, but is often overlooked.
https://www.quora.com/When-and-why-would-some...mon-stocks
In an acquisition. Depending on how the liquidation preference is structured, the investor might receive a larger payout by converting to common. This is where the difference between "participating" and "non-participating" liquidation preferences come into play. For example, if the liquidation preference is non-participating, then the maximum amount the preferred stock will receive in the merger is that liquidation preference. If the merger is a big deal though, the investor might take home a bigger payout if it just took home it's pro rata share of the merger proceeds like a common holder would and gave up the liquidation preference.
To gain more control over the company. This one is counter-intuitive, and does not apply in all cases. But sometimes there will be certain votes that require the consent of the common stock, voting as a separate class from the preferred. For example, the Company's certificate of incorporation or voting agreement could specify that the holders of the common stock get to elect one director to the board. If the investors are looking to make a change to that board seat, they might choose to convert some or all of their preferred stock into common if it would allow them to swing the vote and therefore replace the director. This is essentially giving up liquidation preference in exchange for some control, so is not a common occurrence, but is often overlooked.
https://www.quora.com/When-and-why-would-some...mon-stocks
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