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If company A announces plans to buy company B for 5.5 billion

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Thread replies: 11
Thread images: 1

If company A announces plans to buy company B for 5.5 billion shouldn't company B's market cap equal 5.5 billion?
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No; there is always uncertainty that the deal will close. The discount to 5.5B reflects the likelihood the deal will be completed. Company B's market cap will approach 5.5B until the acquisition is official.
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Not necessarily. Usually, company A would pay what's called an acquisition premium to company B. The owners of company B want to be compensated for the loss of autonomy after the takeover happens, so they demand company A pay them more money than their market cap to make up for that.
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>>1698693
So if you believe the deal will close you should buy stock up the point company B's market cap reaches 5.5B?
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>>1698697
So you agree to the above that once the deal is settled the final market cap of B will reach 5.5B?
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>>1698702
Yes, as long as there are no complications in settling the deal
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>>1698700
In general, yes you should buy company B's stock if you think the deal will close at 5.5B
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>>1698700
I should mention this is a very dangerous game you're playing. If you're right and the company gets bought, you'll make pennies. If you're wrong and the deal falls apart, you'll get blown out and lose big
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>>1698711
This is a good point. By the time you (an ordinary investor) hears about the potential acquisition, it is too late to make any substantial gains.
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Ok guys I'm going to buy in. I'll report back in awhile
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>>1698688
Merger Arbitrage (google it)
Thread posts: 11
Thread images: 1


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