Reading The Market -TakeOvers & Acquisition

TakeOvers & Acquisition

Usually when a company is taking over another company or acquiring a new business or assets the share price goes down.

Most new investors and traders will think that it will be good to buy the bidding company because it will benefit from the purchase or acquisition in the future.

Somehow the market differs from common people logic. Usually the essence of takeovers is that the bidder share price goes down and the target company goes up. Basically, if shareholders from the target company are getting a good deal, the share price of that company could increase.

When a company is purchasing another company, the buyer will have to fund that purchase somehow, either by issuing shares or a bank loan. Whether or not the company ends up with more debt or diluted shares it is irrelevant sometimes. In many occasion it comes down to the “market” feeling about the issue.

While it will be difficult to tag the reason why the price goes up or down, have in mind that in most takeover and acquisition, the buyer share price goes down and the seller goes up.

Sample
Hathor Exploration v Rio Tinto

In this period of time most share were down due to uncertainty in the market. Courtesy of the European debt crisis and surrounding issues such as USA economical recovery. Beside this, Hathor had an exceptionally increased in value.

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