Practical Law Glossary Item 1-383-2169 (Approx. 2 pages)
Glossary
Collar
A mechanism used in mergers to protect parties against certain risks associated with market fluctuations when a buyer’s stock comprises all or part of the merger consideration. The collar sets a range the price of a buyer’s stock can fall into where the parties agree to certain adjustments or no adjustments to the exchange ratio. Collars can protect parties in various ways, for example:
By protecting a buyer from significant dilution by capping the number of shares payable in a merger.
Guarantying the target company’s stockholders a minimum ownership interest in the buyer post-closing.
Assure target company stockholders that the total deal value falls in a specified range.