how exactly does this work?
2006-12-07 12:18:10 · 4 answers · asked by tj F 2 in Business & Finance ➔ Investing
In cases where an announced buyout or takeover quickly drives the market price of the target company above the announced purchase price, this almost always indicates that "the market" believes an even better competing purchase offer will soon appear.
If the takeover is hostile - if target company ABX does not want to be bought out by bidder XYZ - the victim of the hostile takeover will search for a "white knight," meaning another company it feels more comfortable with that could be persuaded to launch a competing purchase offer.
Analysts who follow the sector will speculate, in advance, as to whether there will be a competing higher offer. Because of their in-depth knowledge of the sector, they will also speculate as to the identity of the company that could serve as a white knight, or could launch a rival or competing bid.
Even when no 2nd bid emerges, all this excitement can easily drive a stock's market price above the price set by the first purchase bid.
2006-12-07 14:02:14 · answer #1 · answered by strath 3 · 0⤊ 0⤋
It doesn't always, but many times investors think the takeover is because the company to be acquired is good, better than perceived or that the new company will fund expansion. Sometimes however, investors also think the takeover is offering a low ball price so stock can drop.
2006-12-07 20:28:11 · answer #2 · answered by kate 7 · 0⤊ 0⤋
I only have an idea. If the company is large, known, and not dismantled/liquidated/sold of piecemeal, it means it has returns potential. That someone bought it, implies the company may be put to full operating capacity and, usually, if it's a real potential growth company, may perform better than ever before for the stockholders. As in the case of I.B.M. some years ago which looked like it would just vanish at one point both from mismanagement and loss of a competitive or lead edge. It happens. So, if it's bought. the stock is again in play. In a moment like that, everyone wants to get in on the ground floor of a possible growth boom if they really think the company will go.
2006-12-07 20:23:59 · answer #3 · answered by vanamont7 7 · 0⤊ 0⤋
When a the suitor / buying company is willing to pay a premium over the current market price. This drives the stock price up to reflect the amount the buyer is willing to pay.
2006-12-07 20:26:10 · answer #4 · answered by JNC 2 · 0⤊ 0⤋