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Question on M&A

Wangberg said: "This question is from watching SIRI and XMSR jump 5% and 15% after the merger was announced. question: Is this a common pattern when M&A are announced? I was thinking the company buying out the other, would have a nice run, but in this case XM totally outperformed Sirrus (in that one day). Has there ever been big sell offs when there is talk of a merger? Is merger news usually a safe play for a swing trade? what patterns do you usually see in these types of arrangements?"

Rbreb13 said: "From what I've noticed on M&A's is that the acquired company usually goes up. The acquiree has no set pattern that I've seen. They go up/down/sideways."

Fluidollar said: "[QUOTE=Wangberg]This question is from watching SIRI and XMSR jump 5% and 15% after the merger was announced. question: Is this a common pattern when M&A are announced? I was thinking the company buying out the other, would have a nice run, but in this case XM totally outperformed Sirrus (in that one day). Has there ever been big sell offs when there is talk of a merger? Is merger news usually a safe play for a swing trade? what patterns do you usually see in these types of arrangements?[/QUOTE] Yes, this is almost always the case once a merger is announced and there are a number of investment firms that jump in on the opportunity. The company that is being acquired nearly always jumps up and continues to rise until it it bought out (Exploiting this is called risk arbitrage), and the other company can either rise in share price or lose. Considering that the acquiring company usually offers a to buyout the other company for a much higher price than its actual share price, the acquiring company thus will tend to lose value and its share price will go down. There's an excellent book explaining how to exploit M + A's by Joel Greenblatt called "You Can Be A Stock Market Genius" and if you're interested in "swing trading" on these announcements then definetely read it!!!"