Definition
A collar is a feature of stock-based consideration that limits the parties’ exposure to bidder-stock price movements between announcement and closing. Two main types:
- Fixed value collar — adjusts the exchange ratio so that, within the collar, the value delivered per target share stays constant
- Fixed exchange ratio collar — keeps the ratio constant within the collar, but adjusts (or even gives a walk-away right) if the price moves outside
Why it matters
Without a collar, target shareholders bear full bidder-stock price risk between signing and closing — and the closer the deal price comes to the time the bidder issues guidance / earnings, the more this matters.
Walk-away rights
Many deals include a “walk-away” right outside the collar that lets the target board (or sometimes both parties) terminate if the bidder’s stock falls below or rises above defined thresholds.