What happens to a company's stock price when it is about to be acquired?

When a company is about to be acquired, a variety of factors can have an impact on the stock prices of both the acquiring company and the acquired company.

First and foremost, the stock price of the acquired company will typically rise significantly as a result of the premium that the acquiring company is willing to pay for the acquisition. The acquired company's shares' current market value typically exceeds this premium, which can be paid in cash or stock. The acquired company's stock price may rise significantly as a result of shareholders seeing an increase in the value of their shares.

However, the acquiring company's stock price may also be affected by the acquisition. If the acquiring company believes that the acquisition will be beneficial, the stock price may also rise. This may happen if the acquisition is seen as a strategic move that will help the acquiring company grow and expand its business. On the other hand, if the acquisition is seen as a bad move or if the acquiring company overpaid for it, the stock price may fall.

The stock prices of both businesses may also be affected by the acquisition's terms. If the deal is structured as a cash deal, for instance, the acquiring company's use of a significant amount of cash to complete the acquisition may result in a decline in the price of its stock. In contrast, if the acquisition is structured as a stock deal and the acquiring company does not use cash to complete the transaction, the price of the acquiring company's stock may rise.

Additionally, it is essential to keep in mind that the stock prices of both businesses may be affected by the financial markets' reaction to the acquisition. In the event that analysts and investors believe the acquisition to be beneficial, it may result in a rise in the stock prices of both businesses. On the other hand, if the acquisition is seen as a bad move, the stock prices of both businesses may decrease.

In conclusion, the acquiring company's premium may cause the stock price of the company about to be acquired to rise significantly. However, the acquiring company's stock price may also be affected by the financial markets' reaction to the deal and the acquisition's perceived strategic value. The terms of the acquisition, such as whether it is a cash or stock deal, may also have an impact on the stock prices of both businesses. It is essential to keep in mind that the stock price can be affected by a variety of things, including market conditions and investor sentiment.