Question: What happens to stock value in the event of a company merger or buyout?

Lets say you own stock in company A, which soon merges with Company B. What becomes of the shares that you own?

Also, what would happen in the case of Company A being bought out by Company C?

Answer:

It depends entirely on the terms of the purchase agreement. The buying company will offer X$ per share. Sometimes it is higher than current street price, sometimes lower. You receive shares in the buying company.

1-Company A merges with company B= You all are partnering, income shouln't change or be shared, but I beleive the company makes more!

2- Company C gets all the earnings. (unless you sell it off to them under a sertine bargain and continue to recieve revenue later)

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In general when C buys A, C is paying a premium for A. The value / share of A will rise to close to the offering price by C. In the short term C's $/share will likely fall until after the buyout is complete.

In terms of a merger, it completely is dependent upon the merger agreement. Some of the more popular transactions are 1) shares of one company are traded 2:1, 3:1, 5:2 , even 3:5 for shares of the new company. 2) shares of one company are just bought out, 3) some combination of the two.

Typically the owners of the smaller company, in either case, make out well on the buyout, mergers.

In a merger you give up your stock and company A and company B are combined to form company C. You get stock in company C.

In a buyout company B buys company for cash or stock or a combination of both. Company A is absorbed by company B. There is no company C.

First off, the merger of equals is pretty much dead. FASB doesn't allow pooling of interests accounting anymore so every merger is really a takeover of one company by another. This can be friendly and the companies can be nearly equal but one is pretty much taking over the other.

What happens to your stock depends on whether you own the target or the acquirer. If you own the acquirer often nothing happens to your stock. Your stock can increase or decrease depending on what the market thinks of the acquisition. If you had to bet, you should bet on decrease because acquiring another company either hurts liquidty if it's a cash offer or dilutes the shares if it's a stock offer and neither is good for equity.

If you own the target, you will get an offer for your shares. In most cases you should accept the offer. The offer will either be for shares in the combined company or for cash or both. Almost always the offer will be for more than the current market price. If it's for less than the current market price it's called a takeunder and I can think of only a handful of those in my life (get ready for one with RIMM though). If you accept the offer you will get cash or new shares in your brokerage account. If you don't accept the offer, in the US the merged company only has to treat you fairly which means that they give you rights to sell anytime you want and otherwise ignore you until doomsday.