Novice Mergers and Acquisitions Question

[krylon80]

If you're anticipating Company A will acquire Company B, would it be more advantageous to purchase Company A stock or Company B stock (well in advance of the acquisition, or common knowledge of the acquisition)? Why?

I'm unclear what the advantage or disadvantage is from a stock perspective in this scenario, with regards to both company's stock values. Thanks.

 

[dealer911]

The normal trade is to go Long company B and Short company A - The reason is company A will normally pay a premium to the price for the company B so the price of B will rise - Company A's price will fall as company A are shelling out cash (or shares) to buy company B.- if the merger is considered very positive and not too expensive for company A then both companies stock could rise - if you have inside info I wouldn't touch this trade!

 

[krylon80]

thanks a lot for your input.

 

[pboyles]

thanks a lot for your input.

Krylon

By any chance has someone called you and advised you to buy shares based on a possible buyout?