2007-01-11 03:19:01 · 4 answers · asked by pmarisol 1 in Business & Finance ➔ Investing
Why would I be richer or poorer?
2007-01-11 03:31:04 · update #1
When companies buy another firm, they usually claim that there are "synergies" and that the value of the combined firm is greater than the value of the individual firms. This extra value may come from having complementary product lines, from being able to get rid of redundant administrative costs -- or from gaining enough market share to be able to price more like a monopolist.
Academic studies show that this is often true. The question is -- who gets the excess value. Prior to the Williams Act in the late 1960s, the acquiring firm usually got the excess value. This was because deals could close within three days. Firms would make a takeover bid offering a decent price for 51% of the stock if the deal closes by Monday. This gave companies being bought no time to respond. The 51% who sold by Monday made a small profit. The 49% who did not got screwed and the acquiring firm's shareholders got all the benefits.
After the Williams Act, companies have 30 days to respond. For this reason, the firms that are acquired can get a better deal for their shareholders. Academic studies show that when there is just one company making a bid -- the extra value is shared between the shareholders of the acquiring firm and the acquired firm. However, those 30 days allow the firm that is being bought to seek other firms to buy it. The subsequent bidding war transfers the entire value of the surplus to the acquired firm -- creating a winner's curse for the company that wins the bidding war. On average, when more than one firm bids for a company -- the winning firm's stock price actually drops. The losing firm drops while the deal is in process -- and then bounces back after they lose the deal.
Bottom line: XM stockholders will be winners. Sirius stockholders will be winners if no one else bids on XM and will probably be losers if someone else does.
2007-01-11 03:59:31 · answer #1 · answered by Ranto 7 · 0⤊ 0⤋
Probably richer. XM is currently having a lot of success.
2007-01-11 03:28:00 · answer #2 · answered by knightofsappho 4 · 0⤊ 0⤋
Richer.
2007-01-11 03:26:07 · answer #3 · answered by pinwheelbandit 5 · 0⤊ 0⤋
If you think SIRI will buy XM, then you would want to own XM stock. See http://ibooyah.com for SIRI analysis.
2007-01-11 06:43:20 · answer #4 · answered by Anonymous · 0⤊ 0⤋