Acquiring companies typically pay between 20% and 40% more than the pre-bid market capitalization to acquire target companies.The main reason for this sizable acquisition premium is:
A)To gain acceptance of the bid by the majority of a target company's shareholders,acquirers must pay a significant premium over the target company's stock market valuation
B)Information asymmetry: acquiring companies knows less about the true value of target companies than do these companies themselves
C)Excessive optimism causes acquirers to overvalue their acquisition targets
D)Investment bankers typically mislead the9r clients in their company valuations in an effort to boost their fees

Question

Quizplus · Accepted Answer

Acquirers need to pay a significant premium over the target company's stock market valuation to gain acceptance of the bid by the majority of a target company's shareholders. This premium is necessary to persuade shareholders to sell their shares, which is crucial for the acquisition to take place.

Acquiring Companies Typically Pay Between 20% and 40% More Than