Cram-Down Deal

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Cram-down deal

A merger in which stockholders are forced to accept undesirable terms, such as junk bonds instead of cash or equity, due to the absence of any better alternatives.

Cram Down

To force an investor to accept a deal he/she considers unfair. For example, in a hostile takeover, some shareholders may be forced to accept junk bonds instead of cash in exchange for their stock. Likewise, in an uncovered option, the writer may be forced to purchase the underlying asset at a price that is far away from the prevailing market price. Usually, cramming down occurs when an investor is legally obliged to accept a deal, or when not taking the deal would result in an even greater loss.

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