When a company merge with other company, does that mean their stocks are likely to go up?

Question

When a company merge with other company, does that mean their stocks are likely to go up?

Answer 1

Usually one company offers to purchase the o/s shares of the other for a better price than the market.  The other's shares will rise as a result.

Answer 2

The acquired will typically go up at the time of publication of the proposed acquisition.  The acquirer will typically go down because of business distractions/dilution.

Once the M&A is consummated, there is potential for appreciation if duplicitous costs/staff are eliminated, and/or business synergies enable cost savings/reductions.  In reality, if you do the research, most mergers/acquisitions take the net stock value DOWN long term, not up.  This is because larger and larger companies become less agile, and more unweildy, and find it ever more difficult to take advantages of opportunities with speed and conviction.  The size/scale of a company/industry has a big impact on this.

Answer 3

Often the "bride" (the girl about to get, well, you get it) goes higher because the "groom" buying often pays a premium price in order to get her to want to walk down the aisle of the merger matrimoney. That means the company being bought will often go up while the company buying will often fall.

Still, sometimes this changes. Some such marriages are an excellent fit, so both may go up. Others, say if microsoft and yahoo went at it again, both may suffer in market price. If a big company is taking a company loaded with debt, that may adversely affect the ratios. When TimeWarner took over AOL, the value added was too questionable, so the stock price suffered and never really recovered. I have some money in a little company that bought out an alliance partner (stock went down) and it made for an opportunity to dump some problematic officers and take some bright boys from the company they bought (price went back up).