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Harley....
Generally speaking, the price of stock B should go to within a 10-15% discount
of the takeover price ($5.61) if it is perceived that the merger will go
through and the price of stock of the company doing the taking over remains
constant. Should the merger not be accretive to earnings, the price of the
company doing the taking over could drop and thereby impact the price of stock
B. The less confidence the investing public has in the takeover, the greater
the discount will be to the takeover price. Should the investing public
believe that a bidding war could take place, then the price of stock B could
well go above the proposed takeover price, anticipating a higher bid.
There is a lot more to it than you mentioned, but what you mentioned was
correct.
Jerry
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