Y do you want big stocks to buy out lil stocks?

Question

I've been investing for 2yrs., Someone told me you hope the small caps stocks trading under $25.00, that you actually want them to get bought out by bigger companies, is this true?

Answer 1

It depends. The hope is that the bigger company will pay more for the smaller company's stock than it is currently trading for on the open market. It happens, and sometimes big companies pay alot more for the stock. But you should buy stocks for other reasons - how profitable the company is, how well it is managed, how fast it is growing. Buying a stock because you hope the company will be bought out is a good way to lose money.

Answer 2

For a complete buyout to occur the buying company generally needs to offer a premium over the current market value of the stock.  If they didn't there'd be no reason for the Board and the shareholders to approve the deal.

I can think of potential exceptions - e.g a very illiquid stock.  I can't recall any exceptions, though.

The takeover of Anheuser-Busch is a recent example