What happens to a stock when a company is bought?

The acquiring company's stock tends to slide in the short term because it has paid a premium for the target company, using up some of its cash reserves or perhaps taking on debt. Sometimes the stock slides because investors don't think the merger is a good idea, or that the acquiring company overpaid relative to the target's value.

There are benefits to shareholders when a company is bought out. When the company is bought, it usually has an increase in its share price. An investor can sell shares on the stock exchange for the current market price at any time.

When the buyout is a stock deal with no cash involved, the stock for the target company tends to trade along the same lines as the acquiring company.

A disadvantage to shareholders in a company involved in a buyout is that they are no longer shareholders in that company. This means if the long-term value exceeds the cash price an investor receives, they will not be able to participate or reap any rewards in the future.