An acquisition of a ﬁrm through the purchase of shares of the outstanding stock is frequently more
expensive than if the two ﬁrms had just merged.

Question

Quizplus · Accepted Answer

When purchasing shares of outstanding stock, the acquiring company typically has to pay a premium above the stock's market value, whereas in a merger the two companies combine and the value of the newly merged entity may be greater than the sum of its parts. This can make a merger a more cost-effective option than acquiring a firm through purchasing its shares.

An Acquisition of a ﬁRm Through the Purchase of Shares