Is the DELL, HP, PAR Merger Battle Really A Bullish Thing?

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  Dell HP Merger

Mergers and acquisition activity is a funny thing. There are a lot of expectations tied up in these transactions and there is a lot that could go wrong, however, traders will often respond positively to this kind announcement because it indicates that businesses are willing to take risks. Risk taking is typically a pretty bullish thing to do and at this point the 'deal of the day' between 3Par ( PAR ), HP ( HPQ ) and Dell ( DELL ) may wind up closing at an even higher price than anticipated.

In this case, there is a bidding war going on between Dell ( DELL ) and HP ( HPQ ) for the firm 3Par ( PAR ). Dell initially offered $18 a share for the company that was then countered by HP with $24 a share. However, the stock is currently trading for more than $25 a share. That doesn't happen very often but when a stock trades for more than the best offer price it means that investors are anticipating another higher offer. In this case, that would probably be Dell coming in with another bid.

Usually the stock of the firm to be acquired will trade for a small amount less than the purchase price to account for the risk that the transaction won't close. However, once in a while the reverse is true. M&A activity is usually seen as a fairly bullish signal but it also doesn't add real value to the market. Logically, there is no reason to assume that a merger will be anything other than a zero-sum transaction so a rally after a big announcement like this can be pretty fragile. At this point we would not expect the M&A activity to provide a real catalyst for a bullish change in the market.

BASICS How Stock Prices Change During A Merger


Image Courtesy of DeclanTM

 


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: DELL , HPQ , PAR

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