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A new fool wanting to know which is better, to hold stock in the acquiror or acquiree? Not clear why stock drops for acquiror, beyond obvious cash outlay. Isn't it a good thing to acquire another.
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A new fool wanting to know which is better, to hold stock in the acquiror or acquiree?

Probably the acquiree since you will almost a;ways get a premium over current stock price and the shares will be converted to the acquirer's eventually. However if one doesn't own the stock when deal is announced, wait some time since arbs usually rush in and bring stock at or near premium price.

Not clear why stock drops for acquiror, beyond obvious cash outlay. Isn't it a good thing to acquire another.

Companies tend to have redundancies and it takes time to figure out how many positions new company will require. Management styles need to be able to mesh. Any type of assimilation takes time especially if both companies are large. The market could also feel company overpaid for takeover.

Brent
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That depends. In some cases, shareholders may feel that the company doing the acquiring may be stretching it's resources to thin. In addition to the cash outlay to buy the company, the acquiror will also be taking on the new company's debt, and there may be concern that it is to much.

In other cases, shareholders may feel that the acquisition does nothing to improve the purchasing company. Buying companies because you can isn't always a good policy.

Those are just a couple of the more obvious reasons I can think of. I'm sure other Fools can provide more information.

TJG
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