Mergers and acquisitions (M&A)

Financial Times  7 hrs ago  Comment 
Welcome to Due Diligence, the FT’s daily deals briefing
FiercePharma  Jun 5  Comment 
The annual ASCO meeting often throws new light on old drugs—and old dealmaking. This year, it’s last summer’s most ballyhooed M&A deal—Pfizer’s $14 billion buyout of Medivation—that doesn’t look so impressive anymore, thanks to data...
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FiercePharma  Jun 2  Comment 
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Channel News Asia  May 31  Comment 
Deutsche Telekom is optimistic about the regulatory environment in the United States under the Trump administration.
Forbes  May 30  Comment 
As the industry nears the beginnings of a recovery, investors should keep an eye out for possible combinations, with Ocean Rig, Pacific Drilling and Rowan named as potential targets.
Financial Times  May 30  Comment 
How global chemical dealmaking is reshaping the world


How Stocks react to M&A

When companies announce that they are going to be buying other companies, the stock prices of both institutions react. However, they don't usually react the same way. One stock price typically goes up while the other stock price typically goes down.

The Price of One Stock Goes Up

The stock that usually benefits the most from a merger or an acquisition is the stock of the company that is being acquired. In most cases, the stock price of the company that is being acquired goes up.

The reason the stock price of the company being acquired typically goes up is the company that is doing the acquiring usually pays a premium for the stock of the company it is acquiring. For instance, when Pfizer announced it was going to acquire Wyeth, the price of Wyeth stock jumped higher.

The Price of the Other Stock Goes Down

The stock that usually benefits the least—at least in the short term—from a merger or an acquisition is the stock of the company that is doing the acquiring. In most cases, the stock price of the company doing the acquiring goes down.

The reason the stock price of the company doing the acquiring typically goes down is the company is taking on increased risk by acquiring the new company. Companies involved in mergers and acquisitions like to talk about the "synergies" the combination of the two companies will create, but there are no guarantees combining two companies will result in improved performance and profits

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