What happens to the outstanding shares of the target firm when the acquirer purchases 100% of the target's outstanding stock?
A) They are added to the number of shares of Acquirer stock outstanding
B) They are cancelled.
C) They are converted into preferred stock.
D) They are shown as treasury stock on the books of the combined companies.
E) They are swapped for debt in the new company.

Question

Quizplus · Accepted Answer

When the acquirer purchases 100% of the target's outstanding stock, the outstanding shares of the target firm are cancelled. This is because the target firm is no longer a separate entity but is now owned by the acquirer. The target firm ceases to exist as a separate legal entity and therefore, its shares become redundant.

What Happens to the Outstanding Shares of the Target Firm