The announcement of the merger or acquisition provides new information to the capital markets. This note describes how the behavior of stock prices to a buyer and target after the announcement of a deal. First of all for a stock that has to go through certain defined accouchement effects and the note describes the basic arbitrage between target buyers and stock prices. It shows how post-announcement prices are used to estimate the market of the synergies are closed. Then explains how … Read more »

The announcement of the merger or acquisition provides new information to the capital markets. This note describes how the behavior of stock prices to a buyer and target after the announcement of a deal. First of all for a stock that has to go through certain defined accouchement effects and the note describes the basic arbitrage between target buyers and stock prices. It shows how post-announcement prices are used to estimate the market of the synergies are closed. Then explains how to change the betas of the two companies after the announcement and the arbitrage relationship between prices in a cash-and-shares. Finally, it defines event risk and explain how it affects the prices of the buyer and the target.
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Carliss Y. Baldwin
8 pages.
Release Date: 03 Dec, 2007. Prod #: 208103-PDF-ENG
The evaluation of M & A deals – Announcement Effects, risk arbitrage and event-risk solution HBR case