Adjustment of the Merger Ratio Following MGO Global's Reverse Stock Split
1. The Need for Adjusting the Merger Ratio
On July 18, 2024, MGO Global (MGOL) executed a 1:10 reverse stock split, reducing its total number of outstanding shares by a factor of ten. However, the merger ratio of 30:1, which was announced in June 2024, was originally based on the pre-reverse split share structure. Consequently, it is logically necessary to adjust the merger ratio to 3:1 to reflect this change appropriately.
If the original 30:1 ratio were to remain unchanged after the reverse split, MGOL shareholders would receive significantly fewer shares in the merged entity than initially expected, which could be highly unfavorable. To protect the rights and value of existing MGOL shareholders, adjusting the merger ratio to 3:1 would be a fair and necessary modification.
2. Expected Stock Value After the Merger
If the merger ratio is adjusted to 3:1, MGOL shareholders should receive their shares in the newly merged entity as anticipated, and the stock price is expected to align closely with previous projections. Assuming a corporate valuation in the range of $300 million to $400 million, the estimated share price post-merger would be as follows:
- At a $300 million valuation:
$300,000,000 ÷ 56,752,632 shares = $5.28 per share - At a $400 million valuation:
$400,000,000 ÷ 56,752,632 shares = $7.04 per share
As a result, MGOL shareholders could benefit from a more favorable post-merger share structure than initially projected.
3. Impact of the Reverse Stock Split Prior to Merger Approval
If the reverse stock split was executed before shareholder approval of the merger, the revised share structure should generally be factored into the merger ratio. However, the actual impact may depend on the specific terms outlined in the merger agreement. In many cases, adjustments to the merger ratio are necessary to ensure equitable treatment of shareholders and to reflect changes in the capital structure resulting from the reverse split.
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