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Chapter 5: Q10DQ. (page 648)

What is a typical merger premium paid in a merger or acquisition? What effect does this premium have on the market value of the merger candidate, and when are most of this movement likely to take place?

Short Answer

Expert verified

The typical merger premium is 40-60 percent of the premerger price or higher. The market value will increase, and it happens before public announcement.

Step by step solution

01

Explanation on Merger Premium

Merger premium refers to the extra price paid over the premerger price paid by the acquiring entity to the purchased entity.

02

Effect of Merger Premium on Market Value

The merger premium will increase the share price of the merger candidate, which will increase the market capitalization or market value of the business.

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