Merger Securities

Merger Securities
A non-cash asset paid to the shareholders of a corporation that is being acquired or is the target of a merger. Theses securities generally consist of bonds, options, preferred stock and warrants, among others.

Merger securities can become undervalued when large investment firms are required to sell them as a result of their strict investment requirements. For example, a large mutual fund may receive stock options from an acquiring company when one of the companies held in its portfolio is purchased. If the fund has a policy against holding options, it may be required to sell them, which can then cause the price of the options to fall to very low levels.


Investment dictionary. . 2012.

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