Acquisition Premium


DEFINITION of 'Acquisition Premium'

The difference between the estimated real value of a company and the actual price paid to obtain it. Acquisition premium represents the increased cost of buying a target company during a merger and acquisition. There is no requirement that a company pay a premium for acquiring another company; depending on the situation, they may even get a discount.

BREAKING DOWN 'Acquisition Premium'

Once a company decides it wants to acquire another, it will first attempt to put a real value on the company to be purchased. Then, once it decides how much the company is worth, the acquiring company will decide how much it's willing to pay on top of that in order to present an attractive deal, especially if there are other firms considering acquisition. If this premium offer is accepted, but the value of the company drops before the acquisition is final, possibly because its stock price falls and its product becomes obsolete or concerns are raised about the future of the industry, then the acquiring company may withdraw its offer.

  1. Acquisition

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  2. Takeover

    A corporate action where an acquiring company makes a bid for ...
  3. Predator

    In mergers and acquisitions, a company with sufficient financial ...
  4. Amalgamation

    The combination of one or more companies into a new entity. An ...
  5. Hostile Takeover

    The acquisition of one company (called the target company) by ...
  6. Merger

    The combining of two or more companies, generally by offering ...
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