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stocks of companies being bought

C

chipy

Golden Member
hi all,

i have a question about stocks.

let's say that a bunch of people own stocks in a company.
let's also say that that company gets bought by another company (e.g. oracle / peoplesoft).

then, what happens to the stock that the everyday people, like you and me, have in that company? does it go up? down? or ....

thanks,
chipy
 
It really really really depends. Did the company overpay? Is the company overvalued? Does Company A have the financial capability to avoid any cash flow problems? Does the merger make sense? I could go on and on, but it depends on the deal.
 
if you'd like I can send you a link to a very boring but interesting journal article about mergers and aquisitions.
 
thanks for the replies.

i guess another example that comes to mind is Compaq being bought by Hewlett-Packard.

i can no longer find Compaq listed on the stock market... so what happened to the shares that some public people had of Compaq after HP bought em out?

 
Originally posted by: chipy
thanks for the replies.

i guess another example that comes to mind is Compaq being bought by Hewlett-Packard.

i can no longer find Compaq listed on the stock market... so what happened to the shares that some public people had of Compaq after HP bought em out?
Click to expand...

the compaq shares were traded for HP shares, iirc. it's a standard m&a deal. sometimes, if you don't want to have those shareholders sticking around, you'll give them cash, oftimes leveraging the value of the company you're buying to do so.
 
Lets say before the merger that HP stock was trading at $40 and Compaq stock was trading at $30. HP might offer .8 shares of HP stock for 1 share of Compaq stock. That's equivilant to buying the Compaq stock for $32. Once the merger happens, all the Compaq stock is replaced with HP stock at that rate.
 
thanks elfenix and sciencewhiz! this whole stock market business is really interesting and i'm glad there are people on anandtech forums that know stuff about it. much appreciated!!

chipy
 
Not sure if this point has been added.

One of two things will happen usually. Most likely, the company will buy out all shares of the smaller company at an agreed-upon price. This could be above, below, or at the current stock price, but usually the stock reacts in this direction when the bid is announced. If the bid is accepted, you usually get money of that amount for your stocks (since the big company literally forced you to sell your stock to them).

In other scenarios, like sciencewhiz said, your shares may be converted in proportion to the prices of the stocks (again depending on the bid price, not its current price).
 
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