> When someone swaps a stock - they implicitly value it less than what they get. Hence if you swap your stock with someone else, the buyer implicitly states that your stock is worth more than theirs. Losing deal.
If you're implying that M&A is a zero sum game and that every win for the acquirer is a loss for the seller then no, you're wrong. Your argument really applies to any sale (of anything): for the buyer to buy they have to value the goods more than the price, but the beautiful thing in trade is that the seller can still value the price higher than the goods, without anybody being wrong. Voluntary trade can create value out of thin air.
In an M&A type stock swap deal the reason this works out is that the merger itself can create value. Merge a company with traction in the market with one with a killer product and you have something that's more valuable than the two separate companies.
Obviously these are rules of thumb and do not apply to sophisticated agents that actually know what they are doing.
> In an M&A type stock swap deal the reason this works out is that the merger itself can create value
This is the exception not the rule. If you think you are a) sophisticated and b) in this rare situation - then disregard everything I have said.
> Voluntary trade can create value out of thin air.
If and only if both parties are sophisticated and value the exchanged items correctly. Trade can create value out of thin air. It can also turn value into thin air (booms/busts/fraud etc.).
Capitalism and trade are double edged swords - all I want people to do is watch the downside while they grab the upside.
Comments
I agree with the sentiment, but...
> When someone swaps a stock - they implicitly value it less than what they get. Hence if you swap your stock with someone else, the buyer implicitly states that your stock is worth more than theirs. Losing deal.
If you're implying that M&A is a zero sum game and that every win for the acquirer is a loss for the seller then no, you're wrong. Your argument really applies to any sale (of anything): for the buyer to buy they have to value the goods more than the price, but the beautiful thing in trade is that the seller can still value the price higher than the goods, without anybody being wrong. Voluntary trade can create value out of thin air.
In an M&A type stock swap deal the reason this works out is that the merger itself can create value. Merge a company with traction in the market with one with a killer product and you have something that's more valuable than the two separate companies.
Obviously these are rules of thumb and do not apply to sophisticated agents that actually know what they are doing.
> In an M&A type stock swap deal the reason this works out is that the merger itself can create value
This is the exception not the rule. If you think you are a) sophisticated and b) in this rare situation - then disregard everything I have said.
> Voluntary trade can create value out of thin air.
If and only if both parties are sophisticated and value the exchanged items correctly. Trade can create value out of thin air. It can also turn value into thin air (booms/busts/fraud etc.).
Capitalism and trade are double edged swords - all I want people to do is watch the downside while they grab the upside.