I bought stock in a bank that was really cheap. The bank was then bought buy another, larger bank. This larger bank’s stock is more expensive. Will my stock be reset to match the higher price of this other stock? How does this work? Thanks in advance for your help.
Read the copy of the merger agreement that is provided to you as a share holder. This is mailed to all shareholders of the old company. Most often what happens is that you will get pro-rated shares in the new, larger bank. The first page in the merger agreement usually has the ratio under which the old shares are converted to the new shares.
As an example, let’s say you owned 600 shares of the acquired bank. The merger agreeement specifies the shares would be converted at a 3 to 1 ratio. You then will receive 200 shares of the new bank and your old shares will be taken away. If the purchase by the large bank is a “Cash Merger,” you will receive a check based on how much the acquiring bank agreed to pay to the shareholders of the acquired bank.
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It will not grow to the same price of the other company, but you may get one share of the new company for every fifty or sixty shares of the old company. If this comes out to be less than one share, they will pay you for the fractional share.
If they only got a controlling interest, the old stock may still be traded on the pink sheets for just a few cents per share.
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