Question: What usually happens to a company's stock when it "acquires" or another company merges with it?
The company I own stock in will be merging with another company. My company isn't going out of business but is being combined with another....What ususally happens to the stock of the company?
Answer:
usually when one company combines with another one company is considered to acquire the other company. The acquiring company has to get over 50% of the shares of the aquired company. To do that, the acquiring company must offer something to the shareholders of the acquired company. What they offer is usually shares of the acquiring company, cash, or a combination of cash and shares. In order to shareholders of the acquired company to agree, the offer has to be worth more than the current value of the stock. For example, if the shares are trading at $20 per share, the offer might be $26 per share, the offer might be $27 worth of stock in the acquiring company, or the offer might be for $15 in cash and $11.50 worth of stock in the acquiring company.
Because the acquiring company had to pay more than market value for the company it acquired, it is not uncommon to see the value of the shares in the acquiring company drop modestly in value, although that is certainly not true all the time. If the integration of the two companies is expected to be relatively simple, and the economy of scale is expected to create more savings than the acquisition cost, it is likely that the value of the shares of the acquiring company will go up as well.
The two companies will combine to form a new company and you will get shares in the new company.
If your company acquires another company, then nothing happens to your stock. If your company is being acquired, then the other company will give you cash for your shares or exchange them for some of their shares, or a combination of the two. Your company will send you information about the merger.