InvestorQ : what happens to the stock price of companie that is being acquired by another public traded company . what is the effect of accusation on the share price of both the companies involved in merger?
Rohit Kashyap made post

what happens to the stock price of companie that is being acquired by another public traded company . what is the effect of accusation on the share price of both the companies involved in merger?

Answer
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nishi Shah answered.
1 year ago


You are talking about two different kinds of transactions here. One is an acquisition where one company buys a majority stake in the other company. However, both the companies continue to exist in their current form and are also listed in the stock exchanges. For example, ONGC acquired a majority stake in HPCL but both continue to exist as listed companies.

A merger is something different wherein one company loses its identity and existence and ceases to exist because it merges into the other company. In the past, we had cases like Brooke Bond and Lakme which merged into the Hindustan Lever Group. Now, these companies cease to exist as they are part of the overall business of Hindustan Unilever.

In the case of acquisition, the impact is different for the buyer and seller. For the buyer, if the purchase helps them get access to larger markets or to unique skill sets then it is positive for the price. Similarly, for the acquired company normally a larger balance sheet and brand is positive. In the case of a merger, there is a larger challenge of integrating the smaller company that is merged into the larger company. An example is ING Vysya Bank being merged and integrated into Kotak Bank. Here Synergies matter a lot and the merger is positive for the surviving company only if the synergies of the merger are positive.