When one company buys another what happens to the stock

Founded in by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services. And if you haven't owned a stock that was acquired or that merged with another company before, it's almost certain that you'll experience it at some point in your investing career.

So exactly what happens? But depending on how the deal is being paid for, how long it's expected to take to close, and any speculation about a competing offer, a few things may happen.

What happens to the stock prices of two companies involved in an acquisition?

It can get a little more complicated if a company is being acquired with stock, or a combination of cash and stock, since the value of that stock will also fluctuate from day to day. However, there will be more volatility, depending on the market's reaction, in terms of how it sees the deal affecting Company A. There is also the impact of dilution -- i.

But the market will ultimately tie the movement of Company B's stock to that of Company A until the deal closes. There may also be some additional discount to the stock's price if the stock being acquired is set to pay a dividend between the announced date of the transaction and the closing date.

Furthermore, if there's a lot of speculation that a competing offer could materialize, it may also affect the price of the stock for the company being acquired, though this is usually a very minor impact. The good news is that pretty much all of the hard work happens behind the scenes, and if you hold your shares through the transaction date, you probably won't have to do anything.

If the transaction is being paid in all cash, the shares should disappear from your account on the date of closing, and be replaced with cash. When one company buys another what happens to the stock the transaction is cash and stock, you'll see the cash and the new shares show up in your account.

It's pretty much that simple. Many brokers can also walk you through the process, so if you're looking for support, visit our broker center. If you hold shares in a taxable account, you're subject to the same tax rules for a buyout as you are to your own buying and selling activity.

You will owe taxes based on these rules whether you sell the stocks before bond listing stock market transaction closes, or you hold until the close date and it happens automatically. It doesn't matter whether you voted for or against the transaction.

Participation and profit means you owe taxes. So consider the timeline implications. If you're close to qualifying for long-term gains, when one company buys another what happens to the stock may be worth waiting to get past that one-year mark if you're ready to sell before the transaction closes, simply to lower your tax rate on the gains.

On the other hand, you'll gain a tax-loss option paper trading as well, if you're unfortunate to end up losing money on the deal for some reason.

If you hold shares inside an IRA, there aren't any tax consequences, because of the tax-advantaged structure of these accounts. This article is part of The Motley Fool's Knowledge Center, which was created based on the collected wisdom of a fantastic community of investors. We'd love to hear your questions, thoughts, and opinions on the Knowledge Center in general or this page in particular. Your input will help us help the world invest, better! Thanks -- and Fool on! Try any of our Foolish newsletter services free for 30 days.

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