What happens to stock when a company is bought out?


Quick Answer

According to The Nest, a company no longer exists as its own independently traded company if it is bought out. Investors who own stocks or shares in the company receive some type of monetary compensation, or they are given a share in another company.

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What happens to stock when a company is bought out?
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Full Answer

Anyone with enough money can buy out a company that is traded on the stock market, according to The Nest; however, because it may cost millions to buy out a company, the buyer would typically need some sort of financing. The Nest notes that some investors may take advantage of a leveraged buyout. This type of buyout involves investors borrowing money through bank loans, or bond issuance, to pay for the outstanding shares of stock. If a corporation buys out a stock, the purchasing corporation may use its own stock to buy out the target company.

One of the advantages of a buyout for the company being bought is that even if there is a rumor of a buyout, its stock prices usually rise, as The Nest indicates. However, buyouts usually have disadvantages for current shareholders. If the buying company offers a cash remuneration, those shareholders have to pay income tax or capital gains tax on the cash proceeds.

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