What Happens to Stock When a Company Is Acquired?

With mergers and acquisitions always a preferred way for companies to increase in size, investors need to know what happens to their shares if the company they own stock in is acquired. Let's have a look at the various scenarios.

Getting Paid in Cash

One method of acquiring a company is for the company that's doing the buying to use cash. For example, ABC Inc. may offer $40 a share in cash to acquire XYZ Corp. The shareholders of XYZ get $40 for each of their shares, regardless of what they paid for the stock. The XYZ shareholders take their cash and their stock goes away when the acquisition is complete.

Taking Stock

Another way to execute acquisitions is to use stock. If ABC Inc. and XYZ Corp. are of comparable size, ABC would probably compensate XYZ shareholders by giving them one ABC share for each XYZ share they own. When the deal is completed, XYZ shareholders become ABC shareholders.

A Combination

It is also common to see acquisitions done with a combination of stock and cash. Using the previous example, ABC Inc. buying XYZ Corp. for $40 a share, ABC could offer $20 a share in cash and then a fraction of an ABC share for each XYZ share. The result is still the same. Once the deal is done, the XYZ shares go away and XYZ investors become ABC shareholders.

Resources

• An Explanation of Mergers & Acquisitions