Question I was surprised the other day when Cadbury’s stocks went up so much after they refused the offer from Kraft. To me it seems like shareholders would be running if their company was even thinking of selling out to another. If company A buys company B, don’t the shareholders of company B usually get shafted?
Trying to figure this stuff all out.
Thank you
Loretta
Answer Loretta, this isn't specific to Kraft/Cadbury but in general Company A can only buy Company B if they offer a price that is well over B's share price before the the takeover announcement. So most takeovers are good for those who own Company B shares -- they see a quick increase in the share price and are bought out at a higher price.
There are some exceptions. One example is if Company B's share price is temporarily down a lot for whatever reason, and Company A makes its offer then. Long-time shareholders might say "hey, in another year or two, after the company gets back on its feet, this would be a terrible price, I don't want to get cashed out!" - but the deal goes through anyway. Some people humorously refer to that kind of situation as a "takeunder" instead of a takeover. During recessions and dips in the stock market, those kinds of deals are more likely.
If a takeover offer is refused and the Company B stock goes up anyway, that means enough investors believe that a) Company A will make another, higher offer or b) some other acquirer will come out of the woodwork and make an offer. There's no way to tell in advance how things will pan out though, there are plenty of examples of takeover candidates that never got bought out (so the stock eventually fell again), as well as examples where the eventual buyout was at a higher price.
