Why shares of the company go high if another company tries to buy this one?

Question

As Microsoft wanted to buy yahoo, price of yahoo shares jumped. Why, how does it work?

Is it 100% guarantee, that if company A tries to buy B, shares of B will get price boost?

Answer 1

Did you Google this question?

g111r

Answer 2

<<<Why shares of the company go high if another company tries to buy this one? >>>

The only way a company can successfully take over another is to convince enough stock holders to sell their shares. Since stockholders are people that chose to buy the stock expecting it to go up in value, many will not sell unless offered a higher price.

<<<As Microsoft wanted to buy yahoo, price of yahoo shares jumped. Why, how does it work?>>>

Microsoft had to be willing to pay a higher price for the shares in order to convince many Yahoo shareholders to sell. Since everyone new that Microsoft was willing to pay a higher price, most people refused to sell the stock at a lower price which, in turn, increased the price.

<<<Is it 100% guarantee, that if company A tries to buy B, shares of B will get price boost?>>>

There are no 100% guarantees, but it is about as close to one as you are likely to find.

Answer 3

Sell your shares, buy gold (bars not bonds) and start preparign for hard times.

Answer 4

The kind of "buy" you referred to is really the taking control of the company via the route of having a majority vote from the ownership of the company.  This majority of ownership requires the buying company to gather a very large number of shares.  That creates a huge demand for the stock.  And this demand pushes the price upwards.

The stock price boost received by being a target of an acquisition is not 100% guaranteed.  Certain distress sales, blockage factors, related party transactions, or the reveal of unfavorabe news as part of the delivery of the offer could cause the offer price to be lower than the last-traded price.  JP Morgan initial offer to buy Bears Stearn was accepted at only $2 a share, much lower than the last traded price because the offer was delivered together with the disclosure of the liquidity crisis.