Question

on average what happens to the acquirer share price on the announcement of a takeover

Answer 1

1. While the stock price of the acquired company usually goes up, the stock price of the acquiring company usually goes down. This is mainly because the premium paid for the target's shares is more than the company is worth, at least on paper. The acquiring company might need to pay additional cash or take on more debt to make up for the difference.

This downward scenario can be further exacerbated by market sentiment. If investors think the target is overpriced based on inflated price-to-earnings or other metrics, they might push the stock price of the acquiring company down even further.

2. The stock price of the acquiring firm can also go up after a buyout is announced. This is because when investors believe the acquiring company received a bargain on the price of the target company.

If the acquiring company has a particular weakness and/or a poor brand name that will be helped by the goodwill and reputation of the target firm, this might also push the stock price of the acquiring firm higher

3. After an acquisition is announced, it's common for the acquiring company's stock price to drop while the target company's stock price will rise. Rarely, the acquiring company's stock price will actually go up