Acquiring firms rarely pay more than a small premium over their target's premerger market price, because to do so would be an irrational transfer of wealth to the target's stockholders.

Question

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Acquiring firms often pay a significant premium over their target's premerger market price in order to persuade target shareholders to sell their shares. This premium is intended to compensate the shareholders for the loss of control and potential future profits that would result from the merger.

Acquiring Firms Rarely Pay More Than a Small Premium Over