What happens to the shares of a company that is acquired? How is a new share price decided on?

When a company is acquired, shareholders often receive a buyout at a premium, meaning they are paid more than the current market value of their shares. The final share price is determined by the acquisition terms, which generally fall into three categories:

All-Cash Deal: Shareholders are paid entirely in cash for their shares. For example, when Microsoft acquired LinkedIn, shareholders were offered $196 per share in cash.
All-Stock Deal: Shareholders receive shares of the acquiring company in exchange for their holdings. The conversion ratio depends on the valuations of both companies, and the acquired company’s shares are removed from the stock exchange.
Mixed Deal: A combination of cash and stock is provided to shareholders, with the specific terms outlined in the agreement.
Example: When Walmart acquired 77% of Flipkart for $16 billion, Walmart's share price fell by 3.1% due to the acquisition cost.

The share price of the acquiring company after the deal is influenced by factors such as market perception, the financial performance of the merged entity, debt levels, and investor sentiment. Stock prices can fluctuate significantly depending on how the market views the acquisition's potential value.

Looking Ahead: Investors should stay updated on potential acquisitions and understand the deal's terms to make well-informed decisions. As digital platforms and AI continue to advance, company valuations and acquisition processes are becoming more transparent, minimizing uncertainty and enhancing accuracy.

Conclusion: Whether the acquisition involves cash, stock, or a combination of both, the deal structure determines the outcome for shareholders and impacts the acquiring company’s share price. Market forces will continue to influence post-acquisition dynamics.

For professional advice on mergers, acquisitions, and corporate transactions, contact Lawcrust Consulting at +91 8097842911.