A merger announcement typically causes an immediate reaction in the stock prices of both companies involved.
The target company’s stock usually rises toward the offer or swap price, reflecting the premium being offered. The acquiring company’s stock can go either way up if the market views the deal positively, down if it feels the acquirer is overpaying.
As the merger progresses through approvals, the target’s stock tends to trade close to but slightly below the deal price, the gap reflecting uncertainty around timelines and regulatory clearances. Once the merger is complete, the target is delisted and the merged entity trades as a new stock.
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