Offre Publique d'Acquisition (OPA), or public tender offer, is the process by which one company makes a public announcement of its intention to purchase shares of another in exchange for a premium price. In effect, it is a corporate acquisition that is made public directly to shareholders.
The announcement of an OPA can cause a ripple effect throughout the markets, as many different market factors are affected by the announcement. When a company makes an attractive offer to another company's shareholders, stock prices of the company making the offer will soar.
Furthermore, since there will be speculation on the outcome of the deal, the market sentiment will change. In addition, the major indices (such as the S&P 500 and the Dow Jones) will fluctuate due to the fluctuations in share prices of the companies involved in the transaction. As a result, investors will also change their behavior, and traders will try to take advantage of any price discrepancies that may exist.
How OPAs Work: From Announcement to Completion
Regulatory Review - Various antitrust authorities and financial regulators will review the deal. This stage will give rise to uncertainty and volatility; for instance, the BHP-Anglo American deal in 2024 saw dramatic price fluctuations, as investors were unsure of whether the deal would receive regulatory approval.
The shareholders of the target company will vote whether or not they accept the deal. If they are likely to accept, the share price should remain near the offered price, whereas if there is a high probability of rejection, it is expected that the share price will decline.
Why Companies Launch OPAs: Strategic Motives Behind Takeovers
Growth- Accelerating Your Business: It's always better/faster to purchase than to build your business. When Amazon purchased Whole Foods in 2017 for $13.7 billion, it gained 460 grocery stores and a pre-existing reputation among consumers overnight. If Amazon had developed its grocery network, it would have taken decades to build up to this level of sales. It immediately changed Amazon from an online-only retailer to an omnichannel retailer.
Synergy: "Treasury Synergy" is a finance buzzword describing how two companies can work together and become greater in value together than they were separately. Cost Synergies allow for the elimination of duplicate functions across the organizations, including Supply Chain and Vendor Performance. Revenue Synergies are created by cross-selling products, leveraging Technology, and utilizing combined expertise. When Exxon acquired Pioneer Natural Resources for $60 billion in 2023, both companies worked together to achieve drilling efficiencies and economies of scale that neither could achieve alone and improved their ability to produce Oil at a lower cost per Barrel by combining.
How OPAs Affect Stock Prices: Short-Term Market Impact
There is a fairly predictable set of behaviors in terms of stock price movement right around the time of an OPA. Most target company stocks see immediate increases of 20-40% towards the offer price. In this example of Company X we see that Company X had a stock price of $50 at the time of announcement of its $70 buyout offer , therefore its stock jumped $65-68 immediately. It did not reach the offer price of $70 due to the perceived risk of a possible failure for this deal. This gap between the stock price and offer price is commonly known as the “arbitrage spread”.
Key Takeaways: How to Read Market Signals Like a Pro
Additionally, competitors usually react differently depending on what industry they operate within. So, as can be seen in the example above, the impact of the news is felt immediately and covered fairly accurately in terms of market moves. When large companies acquire other large companies, the entire indices and sentiments of each index will shift due to the merger's impact and subsequent portfolio rebalancing due to the merger. Such indexes experience
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