The announcement of the merger or acquisition provides new information to the capital markets. Shareholders and portfolio managers evaluate the news and trading on the basis of new estimates of value. Thus, from the actual Pstks the two companies can be seen from these values, which investors “think” the transaction to close. The change in PSTK from the last closing price before the announcement to the closing price a day later, the (one-day) called announcement effect. This case series describ … Read more »

The announcement of the merger or acquisition provides new information to the capital markets. Shareholders and portfolio managers evaluate the news and trading on the basis of new estimates of value. Thus, from the actual Pstks the two companies can be seen from these values, which investors “think” the transaction to close. The change in PSTK from the last closing price before the announcement to the closing price a day later, the (one-day) called announcement effect. This case series describes the basic mechanisms of equity-linked consideration. Part 2 describes the mechanisms that announcement effects for both the target and acquiring companies in all-stock transactions are based.
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Carliss Y. Baldwin
6 pages.
Publication Date: Sep 18, 2002. Prod #: 903 028 PDF-ENG
Technical Note on Equity-linked testing, Part 2: Announcement Effects HBR case solution