Stock Price Behavior After an Acquisition: CNBC Explains
By: CNBC Explains
When a company is bought, its stock price is directly affected and may shoot up or down significantly. When one company is purchased using shares of another, the acquired company’s stock price generally tracks at a ratio to the price of the acquiring company’s stock. How and why does this work? Salman Khan of the Khan Academy explains in a hypothetical example.
From this video, you’ll understand:
- How to identify the transaction price of an acquisition
- Important assumptions for corporate acquisitions
When one business acquires another, there are several ways of financing the deal, including the use of the acquiring company’s shares to cover the cost of the transaction. How do these transactions work from the acquiring company’s perspective and what are the benefits for shareholders? Salman Khan of the Khan Academy discusses in a hypothetical example.
