Pro forma ownership split
M&A / Merger ModelThe percentage of the combined company each shareholder base holds once the new shares have been issued.
Also written: pro forma ownership
Compute it in two steps. New shares issued equal the exchange ratio multiplied by the target's share count. The target shareholders' split is those new shares divided by the combined count, and the acquirer's is the remainder.
It is the number that matters for control, and the exchange ratio on its own does not give it to you, because the ratio is per share and the two companies have different share counts. Board composition, voting thresholds and the whole governance negotiation are argued against the split rather than the ratio.
In a deal struck at relative value with no premium, the split should equal each side's share of combined equity value. Where it does not, either a premium is being paid or the ratio was struck on something other than value.
The split does not always move in step with the ratio, which is where candidates come unstuck. Anything that changes both the numerator and the combined total, a special dividend being the clearest case, moves the two by different proportions, because the denominator shrinks alongside the contribution.
Worked example
A ratio of 0.80 on a target with 100m shares issues 80m new shares. Against 120m existing acquirer shares the combined count is 200m, so the target's holders own 40.0%.
Re strike the ratio at 0.70 after a special dividend and 70m shares are issued into a combined count of 190m, giving 36.8%.
The ratio fell 12.5% but the split fell only 7.9%. The general form is the fall in the ratio multiplied by the other side's post dividend share, and 12.5% times 63.2% is 7.9%.