I am wondering if a company has very low stock price now, it dropped steadily since '02, and it's now a good target for takeover or getting bought out. If I invest now, what will happen to stock price after it gets bought.
2006-09-29 02:49:35 · 4 answers · asked by senyor pechkin 1 in Business & Finance ➔ Investing
A number of things can happen. Generally when an acquisition is announced, the stock price of the acquirer goes down and the price of the acquired company goes up. Of course, this is not always the case, and if the acquisition falls apart, gains will typically be wiped out. Of course, if a company is widely believed to be an acquisition target, those gains may already be priced into the stock's price. In short, you never really know what's going to happen...
2006-09-29 02:59:09 · answer #1 · answered by monger187 4 · 0⤊ 0⤋
It depends on why it is being bought -- and who is buying it.
If it is a company that is in trouble and will not be viable on its own -- then they may be willing to sell to someone at a bargain price just to exit without losing everything.
On the other hand, if it is a company that is doing well, then there is usually an increase in share price. Usually when there is an acquisition, there are some synergies so that the total firm is worth more than the two firms. Therefore there is a surplus. The question is -- who gets the value of that surplus.
Prior to the Williams Act in 1966, companies could buy another company on three days notice. There was something called a "Saturday Night Special" where a company would make an offer on Friday to purchase 51% of another company's stock on Monday at a price slightly above the market price. This didn't give the company being bought time to respond. Consequently, 49% of the stockholders got screwed, 51% got a slight raise -- and all of the surplus went to the acquiring company.
After the Williams Act was passed, the company being bought had 30 days to respond. Because of this, the surplus is usually split between the purchasers of the firm and the firm being purchased. Prices of both firms go up. This is true when no other companies get involved.
However, when more than one firm gets into the mix, then the purchased firm gets auctioned off to the highest bidder. The shareholders of the firm being bought get a big bump in value -- capturing nearly all of the surplus. Of the firms bidding on them, both tend to lose some value during the bidding. After the purchase is made, the price of the losing company usually gets a bump in price, while the winner usually sees its stock price go down.
2006-09-29 11:02:34 · answer #2 · answered by Ranto 7 · 0⤊ 0⤋
The stock will go up to the takeover price (or pretty near) when the takeover is announced.
2006-09-29 09:52:07 · answer #3 · answered by Anonymous · 0⤊ 0⤋
It can go up or down.
2006-09-29 10:08:02 · answer #4 · answered by Anonymous · 0⤊ 0⤋