What happens to a stock if it gets bought by a bigger company?

When a stock is acquired by a larger company, the stock price typically experiences a few distinct changes:

1. Target Company's Stock: The stock price of the target company usually increases due to the acquisition. This is because the acquiring company pays a premium for the acquisition, which is higher than the current market price of the target company's stock. This increase in stock price reflects the market's positive view of the deal, as it implies that the target company's shareholders will receive more value for their shares than they would if the company remained independent.
2. Acquiring Company's Stock: In contrast, the stock price of the acquiring company often decreases immediately following the acquisition announcement. This is because the acquiring company pays a premium for the target company, which can deplete its cash reserves or lead to increased debt. Additionally, investors may perceive the premium paid as too high, or they may worry about the integration of the two companies, which can lead to a drop in the acquiring company's stock price.
3. Volatility: Both companies experience volatility in their stock prices before the acquisition is announced, as rumors and speculation about the deal circulate. Once the acquisition is confirmed, the target company's stock price typically rises, while the acquiring company's stock price may fall, contributing to overall market volatility.
4. Long-Term Impact: While there may be short-term fluctuations, the long-term impact of the acquisition on the stock price depends on various factors, such as the successful integration of the two companies and the realization of anticipated synergies. If these factors are positive, the stock price of the acquiring company should increase over time as the benefits of the acquisition are realized.

In summary, when a stock is acquired by a bigger company, the target company's stock price generally rises, while the acquiring company's stock price may initially fall due to the premium paid for the acquisition. However, the long-term impact on the stock prices of both companies depends on the successful integration of the two entities and the realization of anticipated benefits.