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 addition, the all-terrain XRay Cross option is available at a price of 729,900 rubles.
It usually involves a "cross option agreement", a reciprocal arrangement which gives the surviving partners the option to buy the interest of any one of their number who passes away.
Alternatively, they can go for a "cross option," where the surviving partners have an option to require the deceased partner's estate to sell and the estate has a corresponding option to require the surviving partners to buy within a specified period.
The purchase price includes the cross option for certain member of M&H's management team to sell their shares, while RPC is entitled to buy the shares at a pre-agreed price.
They have also mentioned something called a 'cross option' and we are not sure what this all means.
These problems can be avoided in everyone's best interests by putting in place a suitably drawn up "cross option agreement" allowing the surviving business partners or shareholders to buy out the deceased's interest in the business.
* 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
Such an arrangement is often termed a 'cross option' because each party has the option to buy the other out in circumstances that are stated at the outset.
Next, revisit partnership agreements with cross options. Determine which resources are in place to ensure the surviving partner has the means to buy your spouse /family out, in the event of your untimely death.
'Cross options may also be granted back to the outgoing shareholder or his estate in any of these events to allow him or his estate to force the purchase of his shares.