Skip to content
GetProfitable
Search
Dictionary

Deal premium

The percentage an acquirer pays above the target's undisturbed pre-announcement price, typically 20% to 40% in agreed deals.

The premium is measured from the undisturbed price, meaning the price before rumours leaked. If the stock already ran up 15% on speculation, a 30% headline premium is a much smaller premium to the day-before close.

Premium size signals a lot. Very thin premiums invite shareholder lawsuits and a rival bid; very large ones raise questions about the acquirer's discipline and often knock the acquirer's stock down.

Example: a target closed at $28 a month before rumours, drifted to $33, then received a $38 offer. Against the undisturbed price that is 36%; against the last close it is 15%.

Related: acquisition, merger, hostile-takeover, merger-arbitrage

Educational only, not advice. Spotted an error? Post in Site Feedback.