A:

The announcement of an acquisition or a merger does not necessarily mean that the deal will be resolved as originally stated. Speculation of the merger's final result will affect the state of the current share price. For example, if rampant speculation and analysis by the market suggests that another company may make a bid against the original acquirer for the target, the market may bid up the stock's current price to exceed the original buyout price in anticipation of a bidding war. If the market speculates that the target may not be purchased by anyone (for example, antitrust legislation may strike down mergers in the industry or a material financial change may occur to the acquirer/target, changing the attractiveness of the deal), the stock price may not move or may even fall after the initial buyout announcement.

However, if the market assumed that the acquisition will go through at the designated price, the current share price might be slightly off as a result of transaction costs. Traders may attempt some arbitrage by buying the stock, even at a small discount to the buyout price, if it means that they will be able to sell it to the acquirer to gain a small profit. This demand for the stock will slowly drive it up on the exchanges until the cost of the commission to buy the stock eats up the slight spread between the cost to buy the stock and the buyout price.

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