Purchase prices

Q

When a company buys another company, does the acquiree’s stock price always go up? — H.W., Salisbury, Maryland

A

It depends on the deal. If the acquiree’s pre-purchase market value is around $4 billion (let’s say that amounts to a $40 share price), and it’s purchased for $5 billion (or $50 per share), the stock price will likely jump on the news, typically to around the purchase price per share (in this case, $50).

Companies are often bought at premiums to their market value, especially when they have desirable technology, patents, growth prospects and so on. In such cases, the acquirer may have to outbid other interested parties. It’s different for struggling companies; they might be bought for relatively little when their stock prices are depressed.

Meanwhile, if investors are bullish about the acquisition, the acquiring company’s own price might also rise. But if many believe that it overpaid or that it won’t see a good return on its investment, its price can fall. It all depends on investor expectations and reactions to the deal. Some acquisitions turn out to be brilliant moves, while others are regretted.

Q

Can I give my grandchildren small gifts of stock? If so, how? — C.C., Tacoma, Washington

A

You can open custodial brokerage accounts for your kids and invest through them, or you might open direct stock-purchase or dividend reinvestment plan accounts. (Learn more about the latter by typing this wacky address into your browser: bit.ly/2Rjc5Qj.)

Some companies, such as GiveAshare.com and Stockpile.com, specialize in selling single shares (or fractions of shares) that are typically meant to be gifts. Be sure to focus on companies that kids know and like, such as Apple, Starbucks, Netflix or Nike.