Offer premium: drag the bid
Drag the handle to set the offer. The unaffected close is held still, so the headline premium moves only because the bid does. Below the dashed line the figure is a discount. The denominator is the close before the news leaked, not the last trade.
Offer premium
30.0%
Spread a share
$12.00
The denominator is the close before the news, not the last trade. Below the dashed line is still a premium. Illustrative arithmetic, not a bid or advice.
Unaffected close
$40.00, held still so only the offer moves the premium.
In short
- Drag the handle up for a higher offer and a larger premium.
- Cross the dashed line for a discount to the unaffected close.
- Read the spread in money a share as well as the percent.
- Focus the handle and use the arrow keys to step the offer.
The close before the news
Once a rumour is in the tape, the last trade is a blend of the old price and the offer, so the premium against that trade looks smaller than it is. Offer premium uses the unaffected close on purpose.
How offer premium works is the identity, with the offer premium calculator under the answer. Offer premium is the one-sentence version.
A percent is not a cheque
Premia are percents. Synergies and control are dollars. A 20 percent premium on a cheap close can be a smaller cheque than a 15 percent premium on a dear one. Equity value implied by the offer is the offer times the share count. This picture prices one share.
If the bid is for the operations, not only the equity, enterprise value is the next object.
The standalone value sits underneath
The premium is being added to a standalone price. How DCF works is that standalone, if you are building the bid rather than reading one. This picture will not mix cash, stock, or collar terms. One offer, one close, one ratio. Equity is the claim the offer is buying.
Common questions
Why not use the last trade?
Because the last trade may already contain the deal. The unaffected close is the price that did not.
Can the premium be negative?
Yes. A bid below the unaffected close is a discount. The formula prints a negative rather than swapping the labels.
Is this what a deal should pay?
No. It is offer over close on a teaching sheet. It is educational material, not advice.
Keep reading
This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.