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Recently, I saw in the news that Kirkland Lake Gold made an offer to buy Detour Gold using shares. I'm curious what this exactly means... My first guess is when Kirkland decides to buy Detour Gold with shares, Kirkland is essentially giving up ownership to a portion of itself over to Detour Gold. Is that correct? ANd because Kirkland's share price before the offer was trading at a premium, this afforded them the currency to buy more of Detour ?

Also as a tangential question, where do I usually go to determine how much of a public company is owned by various parties?

  • In response to your edit: A company raises cash by going public with an IPO. After that, the shares change hands at higher or lower prices between investors and traders. There would be no benefit to Kirkland (having more 'currency') if its shares were trading at a higher price unless they did a secondary offering, issuing more shares to raise additional cash. A higher share price might indirectly help Kirkland if they were borrowing money to do the deal (collateral). – Bob Baerker Nov 29 '19 at 23:33
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From what I can tell, as of writing, Kirkland has a share price around $42 and a market capitalization of around $8.8B, implying around 200M outstanding shares ($8.8B/$42, rounded to one significant figure; I'm getting the share price an market cap from different sources, so I'm not confident that they're reflecting the same exact point in time), with the numbers being around $18, $4.4B and 250M for Detour Gold.

If Kirkland buys Detour for $4.5B (I have no idea what the actual number is, it is probably slightly larger than market cap, as acquisitions tend to be at a premium), and they want to do it with shares, then they will, at current share price (note that acquisitions can introduce a lot of volatility into share price, so this is another area of uncertainty), need $4.5B/42 = 107M shares. So they will go from a ~$9B company with ~200M shares outstanding to a ~13B company with ~300M shares outstanding. Since $18/$42 ~=.43, owners of Detour shares will get around .43 shares of Kirkland for every share of Detour share they currently have. This might be what you're getting at when you say " ANd because Kirkland's share price before the offer was trading at a premium, this afforded them the currency to buy more of Detour ?": the higher the price of Kirkland shares compared to Detour, the fewer shares of Kirkland need to be given for each one of Detour.

The result is in many sense effectively a merger: instead of there being two separate companies, with people owning shares in one or the other, there will be one company with shareholder of the previous companies now owning shares of the merged company.

Kirkland is essentially giving up ownership to a portion of itself over to Detour Gold.

Sort of kind of. Rounding the market caps to $9B and $4.5B, the Detour shareholders will end up with 4.5/(9+4.5) = 33% ownership of the merged company. You can think of that as going from owning all of Detour and none of Kirkland, to owning one-third of both. Kirkland shareholders, meanwhile, will own two-thirds of both. So there is some sense in which Kirkland shareholders are giving up one third of their ownership of Kirkland to get two thirds of Detour. Of course, once this goes through, there won't be a distinction between owning Kirkland versus owning Detour.

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When Kirkland decides to buy Detour Gold with shares, Kirkland is essentially giving up ownership to a portion of itself over to Detour Gold.

Kirkland isn't giving up ownership. They're purchasing Detour and Detour shareholders will receive some number of Kirkland shares (and possibly some cash) in return, most likely at a premium to what Detour was trading at before the merger announcement.

If Kirkland issues new shares, it will be dilutive to the original Kirkland shareholders but in return, their shares will represent owning a portion of a larger company (the merged Kirkland + Detour) If it's a good acquisition, it will add to long term growth.

Also as a tangential question, where do I usually go to determine how much of a public company is owned by various parties?

That information would only be available for corporate insiders and institutions who hold large positions that must be reported to the SEC. While the transfer agent knows who owns all shares at all times, they don't publish the holdings of retail investors like us.

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  • I thought owning shares of a compsny means owning a portion of a company? So if detour is receiving shares from Kirkland, therefore, detour is getting some ownership of Kirkland and Kirkland is giving up some ownership to detour? I'm still new to understanding what shares really means – John Nov 29 '19 at 19:39
  • See if this helps you to understand what's going on: investopedia.com/ask/answers/06/macashstockequity.asp – Bob Baerker Nov 29 '19 at 19:43
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    @John Detour's shareholders are getting Kirkland shares. Detour's shareholders are doubtless getting more value than the shares were listed at prior to the bid. Kirkland shareholders are getting a smaller slice of a larger cake (if Kirkland issues new shares). That might be a good deal if the larger company is more competitive/efficient. – richardb Nov 29 '19 at 22:01
  • I still had trouble understanding what an "all stock deal" is. I found this youtube.com/watch?v=DMd9mTyzj6k . And it says that the acquiring company Kirkland needs to issue X number of new shares from itself (this is the dilution Bob Baerker is talking about?) which they will then give to Detour for Y number of Detour shares? Where X*(number of Kirkland shares) is typically a greater monetary value than Y*(number of Detour shares)? – John Nov 30 '19 at 2:35
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    Here are the details: Kirkland Lake Gold is buying Detour Gold Corp. for $4.9 billion, valuing Detour at $27.50 a share. Detour shareholders will receive 0.4343 share of Kirkland for each of their Detour shares. After the deal is completed, existing Kirkland shareholders will own 73 per cent of the new company with Detour owners holding the rest. Investors did not like the deal. Kirkland lost about $2 billion of the company’s market value right after the announcement. – Bob Baerker Nov 30 '19 at 3:21

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