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>Salesforce's stock has been trading at all-time highs — partly because of rumors about a take-over, but also because the company has had some really good quart

by greggyb 11y ago

>Salesforce's stock has been trading at all-time highs — partly because of rumors about a take-over, but also because the company has had some really good quarterly earnings and is growing fast. >Now that it appears merger talks are over, shares of Salesforce are climbing again. Stock price climbed due to potential for a merger. Stock price climbs again due to end of potential for a merger. Does a merger have an effect on the stock price? Its presence and absence are both (partial) causes for stock price growth. I'm probably primed for this due to an article on a logic puzzle[0]. [0]https://news.ycombinator.com/item?id=9588845 https://news.ycombinator.com/item?id=9588845

caminante 11y ago
Given TargetCo(CRM) and BuyerCo(MS), if TargetCo walks away from BuyerCo's offer, that could be a bluff or a positive signal about TargetCo's value. CRM likely thinks it's worth more and/or it could get more. The market agrees for now.
aetherson 11y ago
I don't know, it's not, like, crazy to imagine that both a merger and rejecting a merger might increase stock price. Imagine that someone has the mineral rights to an area in which they assert there might be valuable mining. You are interested, but lack the expertise to evaluate their claims. Now suppose that a savvy third party comes along and makes them a sizable offer for the mineral rights. You may think, "Okay, this third party has expertise that I lack -- I am upgrading my belief that there really are valuable minerals here." Now if the original party rejects that offer on the grounds that it's not high enough, you might think, "Okay, they aren't idiots -- if they rejected that offer, they must have genuine reason to believe they can get more later," and upgrade your beliefs again.
jaredhansen 11y ago
I have no idea whether the price offered was a good one, but the reason that both the rumors of talks, then the dissolution of talks, could cause the stock price to rise is pretty simple: 1) Rumors circulate of a pending acquisition. Obviously that acquisition will have to happen at a premium to the current price or it won't happen, so that's a signal that if you buy at today's price, you can sell in the acquisition and make a profit. People start buying on that rumor, causing the price to rise. 2) Reports subsequently surface that a $55B offer, which would have been a premium from the original price, was rejected and that $70B was sought. People think "well maybe the real clearing price is something like $65B" -- and that's higher than today's price, so people buy at today's price in hope of making a profit if/when that transaction eventually takes place. The price therefore rises again. Again, no idea what the price "should" be today, but it's not illogical that the price could rise both on the rumor and on the end of the rumor (especially when, as here, the explanation for the end was the (possibly self-serving) "the price wasn't high enough!").
- greggyb 11y ago
  I get how both can cause an increase in stock price in practice. Coming as I was immediately from the logic puzzle thread, I was primed to think differently about the statements. A very literal (and a bit naive) reading of the article leads one to conclude that: merger -> increased price not merger -> increased price This allows us to conclude that knowledge of (merger|not merger) gives us no extra information about whether price should increase. Again, I am interpreting strictly as a pair of logical statements.
  - nl 11y ago
    You are missing a key variable. Estimated future earnings -> price
    - greggyb 11y ago
      Not missing anything. Please see above; I am amused at the naive interpretation of two excerpted sentences. I am not ignorant of matters financial.
rfrey 11y ago
"17th c Amsterdam traders were “very clever in inventing reasons” for a sudden rise or fall in stock prices.” -- John Brooks, Business Adventures

by greggyb 11y ago

caminante 11y ago

Given TargetCo(CRM) and BuyerCo(MS), if TargetCo walks away from BuyerCo's offer, that could be a bluff or a positive signal about TargetCo's value. CRM likely thinks it's worth more and/or it could get more. The market agrees for now.

aetherson 11y ago

I don't know, it's not, like, crazy to imagine that both a merger and rejecting a merger might increase stock price. Imagine that someone has the mineral rights to an area in which they assert there might be valuable mining. You are interested, but lack the expertise to evaluate their claims. Now suppose that a savvy third party comes along and makes them a sizable offer for the mineral rights. You may think, "Okay, this third party has expertise that I lack -- I am upgrading my belief that there really are valuable minerals here." Now if the original party rejects that offer on the grounds that it's not high enough, you might think, "Okay, they aren't idiots -- if they rejected that offer, they must have genuine reason to believe they can get more later," and upgrade your beliefs again.

jaredhansen 11y ago

I have no idea whether the price offered was a good one, but the reason that both the rumors of talks, then the dissolution of talks, could cause the stock price to rise is pretty simple: 1) Rumors circulate of a pending acquisition. Obviously that acquisition will have to happen at a premium to the current price or it won't happen, so that's a signal that if you buy at today's price, you can sell in the acquisition and make a profit. People start buying on that rumor, causing the price to rise. 2) Reports subsequently surface that a $55B offer, which would have been a premium from the original price, was rejected and that $70B was sought. People think "well maybe the real clearing price is something like $65B" -- and that's higher than today's price, so people buy at today's price in hope of making a profit if/when that transaction eventually takes place. The price therefore rises again. Again, no idea what the price "should" be today, but it's not illogical that the price could rise both on the rumor and on the end of the rumor (especially when, as here, the explanation for the end was the (possibly self-serving) "the price wasn't high enough!").

greggyb 11y ago
I get how both can cause an increase in stock price in practice. Coming as I was immediately from the logic puzzle thread, I was primed to think differently about the statements. A very literal (and a bit naive) reading of the article leads one to conclude that: merger -> increased price not merger -> increased price This allows us to conclude that knowledge of (merger|not merger) gives us no extra information about whether price should increase. Again, I am interpreting strictly as a pair of logical statements.
- nl 11y ago
  You are missing a key variable. Estimated future earnings -> price
  - greggyb 11y ago
    Not missing anything. Please see above; I am amused at the naive interpretation of two excerpted sentences. I am not ignorant of matters financial.

rfrey 11y ago

"17th c Amsterdam traders were “very clever in inventing reasons” for a sudden rise or fall in stock prices.” -- John Brooks, Business Adventures