The stock price of a target may decrease if investors anticipate that the target will be acquired, since they are aware that stock prices of targets fall abruptly after a bid by the acquiring firm.

Question

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The stock price of a target may actually increase if investors anticipate that the target will be acquired, as it is a positive signal that the company is considered valuable by another firm. However, it is true that stock prices of targets may fall abruptly after a bid by the acquiring firm, as the offer price may be lower than what investors were hoping for.

The Stock Price of a Target May Decrease If Investors