sometimes the price of the stock on the market will be above or below the buy out price. For instance even after HLT had been given an offer and the news made public, the price still moves about during the day. Why is that?
2007-07-09 11:01:57 · 5 answers · asked by Paper M 1 in Business & Finance ➔ Investing
That is the risk of the deal not getting done and the time value of money in effect.
Risk - When Blackstone offers $47.50 per share of Hilton there is still room for the stock to move in either direction. If investors felt that $47.50 was not enough, and that either Blackstone or a rival bidder might pay more, you could see HLT above the offer price of $47.50.
The other side of risk, could be that the deal doesn't get done. Blackstone could back away from the deal for a variety of reasons (i.e. uncover new info during due diligence, terrorist attacks change the outlook, etc). In other deals, regulatory approval is no assured thing (see GOOG acquisition of DoubleClick). Especially with private equity deals, the likelihood of being able to take out enough debt for these massive acquisitions is no longer a sure thing.
The other side to the spread between the announced offer and the current trading price is the time value. If Blackstone offers you $47.50 per share for HLT, but the deal won't close for several months, that stream of cash in a few months isn't worth $47.50 -- you'd probably discount it by the T-bill rate of 5% (annual) so maybe it's more like $47.10 (5% / 12 = 0.2% per month discount... $47.50 - (1-0.2%)*2 months)
2007-07-09 11:17:46 · answer #1 · answered by jimbobbighouse 4 · 0⤊ 0⤋
The price of the stock as it is traded rarely reflects the value of the assest and projected dividends coming from the stock. The market price is governed by people specualting. People actaully buying the equity in order to own and control the company can't get out of the purchase as easily as could a buy of stocks of when the company is traded publicly. Therefore, the price differs.
2007-07-09 18:07:06 · answer #2 · answered by urrrp 6 · 0⤊ 0⤋
Why not? If an offer is made, it doesn't mean it is going to be accepted; the target may reject it altogether or attempt to negotiate for a higher price, or try to block the acquisition attempt by litigation. So the uncertainty continues to exist...
2007-07-09 18:11:34 · answer #3 · answered by NC 7 · 1⤊ 0⤋
hopes of make a profit. No buy out price is final until the stock holders have voted on it.
2007-07-11 15:07:48 · answer #4 · answered by K M 4 · 0⤊ 0⤋
Because the offer could be rejected.
2007-07-10 03:18:12 · answer #5 · answered by Anonymous · 0⤊ 1⤋