cross option

Cross Option

Two option contracts giving two companies the right, but not the obligation, to buy a significant amount of stock in each other for a certain strike price. Cross options are most common when the companies are in the process of merging anyway. The companies enter the cross option in order to reduce the risk that a third party will come and disrupt the merger by buying one of the companies.

cross option

An option that permits each of two parties to purchase a specified ownership stake in the other. For example, a cross option may allow each of two companies to buy 10% ownership in the other company. Cross options are frequently used in merger agreements in order to thwart hostile takeover bids from a third party.
Case Study In April 2001 First Union Corporation and Wachovia Corporation, two large commercial banking firms, announced a merger agreement under which First Union would acquire Wachovia in an exchange of stock. The price offered by First Union for Wachovia was at a relatively small premium to the premerger price, and some analysts and investors believed another bidder might emerge to make a better offer. Wachovia had previously engaged in merger discussions with SunTrust Banks, which many analysts believed was a better fit with Wachovia. To thwart another bidder, the two banks used a cross option that allowed either bank to purchase a 19.9% stake in the other. The cross option allowed First Union to purchase nearly 20% of Wachovia so that a hostile bidder would have to negotiate with First Union for a large amount of Wachovia stock. In the less likely case of a hostile offer for First Union, the bidder would be required to negotiate with Wachovia to buy a large block of First Union stock. Thus, the cross option served as a deterrent to another company interfering in the planned merger.
References in periodicals archive ?
In a Shareholder Agreement, it's a similar principal of buying and selling arrangements, with the most popular being the cross option.
these Licences under the Waddock Cross Option Agreement.
If these two entrepreneurs had taken advice at the right time, they would have put in place appropriate wills, trusts, cross option arrangements and life assurance.
Consequently the cross option agreement, or double option as it is also known, also needs to be in place.
Adds language stating that the performance period of Blanket Purchase Agreement (BPA) established under the schedules program may cross option periods on the base contracts
The Healthy Families program Blue Cross option will be administered through Blue Cross' Medi-Cal Programs division, which was established in 1994 to service Medi-Cal contracts.
The agreement also provides that, upon an event of termination, a fee is payable to either party, and a cross option allows each party to purchase up to 19.
Consumers can select from a variety of Blue Cross options - everything from very comprehensive coverage that carries a higher premium, to low-premium plans that meet the needs of cost-conscious consumers.
The companies have granted each other customary cross options and have agreed to reciprocal fees upon termination of the agreement of up to $2 billion in certain circumstances.
John Fearing, co-owner of Moxie, counts the Blue Cross Options Blue HSA plan as a key part of his "Reasons to Stay" employee retention strategy.
The companies have entered into cross options under which each company has been granted an option to purchase up to 19.