Asked by Kymberly Corley on Jun 14, 2024
Verified
The price at which a merger target's stock is acquired virtually always reflects a premium over its pre-merger market value because:
A) the acquirer is trying to fairly divide the gain it will make on the acquisition between its own stockholders and the target's.
B) it takes a substantial premium to get a large number of shareholders to sell at one time.
C) the combined firm generally has an increased value because of additional leverage.
D) the acquirer wants the target's shareholders to be happy about the merger because they will be among its shareholders after the transaction.
Pre-Merger Market Value
The total market valuation of a company before it enters into a merger agreement with another entity.
Merger Target's Stock
The shares of a company that is the potential or actual subject of an acquisition or merger.
Substantial Premium
A substantial premium refers to a significantly higher price paid over the current market value of an asset or company, typically in mergers and acquisitions.
- Identify factors that influence the premium paid in merger transactions.
Verified Answer
Learning Objectives
- Identify factors that influence the premium paid in merger transactions.
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